African Economic Outlook 2006 2007

African Economic Outlook
2007
African
Economic
The African Economic Outlook combines the expertise of the OECD – which produces the OECD Economic
Outlook twice a year – with the knowledge of the African Development Bank on African economies.
The objective is to review annually the recent economic situation and the short-term likely evolutions of
Outlook
selected African countries. The Outlook is drawn from a country-by-country analysis based on a unique
analytical design. This common framework includes a forecasting exercise for the current and two following
years using a simple macroeconomic model, together with an analysis of the social and political context.
It also contains a comparative synthesis of African country prospects, placing the evolution of African
economies in the world economic context. This edition includes a special focus on water and sanitation
issues. A statistical appendix completes the volume.
This volume will be of significant interest to decision makers in African and OECD countries, both in the public
and private sectors, such as aid agencies, investors, and government officials of aid-recipient countries.
The African Economic Outlook is a joint project of the African Development Bank and the OECD
Development Centre, with generous support from the European Commission.
This publication provides dynamic links (StatLinks) for graphs and tables. These StatLinks direct the user
to a web page where the corresponding data are available in Excel® format.
COUNTRIES COVERED
• ALGERIA • ANGOLA • BENIN • BOTSWANA • BURKINA FASO • CAMEROON • CHAD • CONGO • CÔTE D’IVOIRE
• DEMOCRATIC REPUBLIC OF CONGO • EGYPT • ETHIOPIA • GABON • GHANA • KENYA • MADAGASCAR
• MALAWI • MALI • MAURITIUS • MOROCCO • MOZAMBIQUE • NAMIBIA • NIGER • NIGERIA • RWANDA
• SENEGAL • SOUTH AFRICA • TANZANIA • TUNISIA • UGANDA • ZAMBIA
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PERSPECTIVES ÉCONOMIQUES EN AFRIQUE
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African Economic Outlook © AfDB/OECD 2007

THE AFRICAN DEVELOPMENT BANK GROUP
The African Development Bank Group is a regional multilateral development finance institution the members
of which are all of the 53 countries in Africa and 25 countries from Asia, Europe, North and South America.
The purpose of the Bank is to further the economic development and social progress of African countries,
individually and collectively. To this end, the Bank promotes the investment of public and private capital for
development, primarily by providing loans and grants for projects and programmes that contribute to poverty
reduction and broad-based sustainable development in Africa.
The non-concessional operations of the Bank are financed from its ordinary capital resources. In addition,
the Bank’s soft window affiliates – the African Development Fund and the Nigeria Trust Fund – provide
concessional financing to low-income countries that are not able to sustain loans on market terms.
By the end of 2006, the African Development Bank Group cumulatively approved 3 102 loans and grants
for commitments of close to $59 billion. The commitments were made to 52 regional member countries and
institutions to support development projects and programmes in agriculture, transport, public utilities, industry,
education and health services. Since the mid-1980s, a significant share of commitments has also gone to promoting
economic reform and adjustment programmes that help to accelerate socio-economic development. About 60
per cent of the total Bank Group commitments were financed on non-concessional terms, while the balance benefited
from concessional financing.
© AfDB/OECD 2007 African Economic Outlook

Foreword
Foreword
The African Economic Outlook project is a joint initiative of the African Development Bank and the OECD
Development Centre. The Report was essentially drafted by a core team drawn from both institutions, supported
by resource people in selected countries.
A generous grant from the Commission of the European Communities was essential to initiating and
sustaining the project.

Table of Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Part One: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part Two: Country Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

• Algeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
• Angola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
• Benin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
• Botswana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
• Burkina Faso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
• Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
• Chad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
• Congo Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
• Congo Dem. Rep. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 5
• Côte d’Ivoire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
• Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
• Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
• Gabon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
• Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
• Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
• Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
• Malawi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
• Mali . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
• Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
• Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
• Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
• Namibia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
• Niger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
• Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
• Rwanda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
• Senegal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
• South Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
• Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
• Tunisia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515
• Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531
• Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545
Part Three: Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

Acknowledgements
Acknowledgements
The African Economic Outlook was prepared by a team led by Kenneth Ruffing. The core team was com-
posed of Peter Ondiege, Barfour Osei, Mohammed Salisu, Audrey Verdier-Chouchane and Beejaye Kokil at the
Chief Economist Complex of the African Development Bank and Céline Kauffmann, Federica Marzo, Nicolas
Pinaud and Lucia Wegner at the OECD Development Centre.
The comparative synthesis of the Report was drafted by Céline Kauffmann and Kenneth Ruffing with
inputs from: Andrea Goldstein, Federica Marzo, Audrey Verdier-Chouchane and Lucia Wegner.
The country notes were drafted by Farid Benyoucef, Federico Bonaglia, Andrea Goldstein, Sana Harrabi,
Céline Kauffmann, Federica Marzo, Ida Mc Donnell, Peter Ondiege, Felix N’Zue, Barfour Osei, Stephen
Owusu, Nicolas Pinaud, Mohammed Salisu, Désiré Vencatachellum, Audrey Verdier-Chouchane and Lucia
Wegner.
The work on the country notes greatly benefited from the valuable contributions of local consultants: Rose
Aiko (Tanzania), Oluyele Akinkugbe (Botswana), Salmata Ouedraogo (Burkina Faso), William Bekoe (Ghana),
Abderrazak Zouari (Tunisia), Youcef Benabdallah (Algeria), Tabo Symphorien Ndang (Chad), Carlos Nuno
Castel-Branco (Mozambique), Emilio Dava (Mozambique), Klaus Schade (Namibia), Malak Reda (Egypt),
Eric Hazard (Senegal), Yaro Jinjiri (Nigeria), Serge Kpassokro (Côte d’Ivoire), Teigist Lemma (Ethiopia),
Oumar Makalou (Mali), John McGraph (Malawi), Mohamed Derrabi (Morocco), Michel Matamona (Congo),
Thierry Mutombo (Democratic Republic of Congo), Patrick Musila Mwaniki (Kenya), E.S.K. Muwanga-Zake
(Uganda), Robert Ngonthe (Cameroun), Francis Gatare (Rwanda), Chiwama Musonda (Zambia), Modeste
Mfa Obiang (Gabon) and Abdoulaye Zonon (Burkina Faso). The Angola country mission benefited greatly
from the support of Massimo Pronio from the European Commission delegation in Luanda.
The committee of peer reviewers of the country notes included: Maria João Azevedo, Sylvain Dessy, Paul
Koffi Koffi, Anne-Marie Geourjon, Stephen Golub and Arne Wigg.
6 Valuable statistical inputs were provided by Hilaire Kadisha, Koua Louis Kouakou and Fetor Komlan at the
AfDB Development Research Department.
The macroeconomic framework used to produce the forecasting was updated and managed by Céline
Kauffmann and Federica Marzo at the OECD Development Centre and Beejaye Kokil at the African
Development Bank. The statistical annex is the product of a joint work carried out by Beejaye Kokil and
Federica Marzo.
The project also benefited from crucial research assistance provided by Ralph Christian Maloumby-Baka
and Yvette Chanvoédou at the OECD Development Centre and Rhoda Bangurah, Nelson Abiana, Koua Louis
Kouakou and Fetor Komlan at the AfDB Development Research Department. Michèle Girard, Librarian at the
OECD Development Centre, was also of assistance.
The country maps were produced by Roland Pourtier. The maps and diagrams used in this publication in
no way imply recognition of any states or political boundaries by the African Development Bank Group, the
European Union, the Organisation for Economic Co-operation and Development, the Development Centre
or the authors.
A large number of African government representatives, private-sector colleagues and civil society members
provided extremely valuable inputs and comments, including all the participants in the joint AfDB/OECD
Development Centre expert meeting on: Access to Drinking Water and Sanitation. Several institutions also
contributed to the project at various stages: the AfDB country operations departments, the AfDB Water and
sanitation Department, the European Commission delegations in Africa, the African Partnership Forum
Support Unit, the OECD Economics Department, the OECD Development Co-operation Directorate, the
OECD Environment Directorate, the OECD Directorate for Financial and Enterprise Affairs and the World
Bank Economic and Prospects Group. The OECD Development Centre’s Communication Unit, led by Colm
Foy and Sheila Lionet, was responsible for transforming the manuscript into the publication.
Graphic design and layout were done by Vif Argent Communication, Paris
The Outlook was prepared under the overall guidance of Javier Santiso, Chief Development Economist,
OECD Development Centre, Louis Kasekende, Chief Economist, AfDB and Temitope Waheed Oshikoya,
Director, AfDB Development Research Department.

Preface
Preface
This year’s edition of the AEO contains, once again, grounds for optimism regarding the continent’s sustained
economic development. Backed by favourable commodity prices, increased aid flows, debt forgiveness and, most
importantly, the implementation of needed reforms, economic performance improved in many African countries
in 2006.
Many African governments have taken promising steps towards restructuring their countries’ economies. In
many countries, democracy is becoming deeply rooted, leading in turn to increased participation by civil society
in the political process. Substantial progress has been achieved towards regional co-operation supported by the
NEPAD initiative, under the auspices of the African Union. We are also pleased to note that the first three of
the African Peer Review Mechanism (APRM) reviews have been completed, signifying in concrete terms the
beginnings of a sustained commitment to improved political and economic governance. Furthermore, there appears
to be a resurgent commitment on the part of the international community to support African efforts to mobilise
resources for investment in infrastructure through the Infrastructure Consortium for Africa. These recent
developments provide a sound basis for future economic progress.
Access to drinking water and sanitation is the topic of special focus for this edition of the report. It is to be
deeply regretted that few African countries are on track to reach the Millennium Development Goals set for these
areas. In order for sub-Saharan African countries to reach the drinking water MDG by 2015, annual growth in
the number of people provided with access to safe drinking water would need to triple. For the same countries
to meet the MDG for access to sanitation, a further 35 million people annually would need to be provided with
access to it; this is to be compared with the current pace of 7 million. Financing remains a major issue: government
financing, private-sector participation and development assistance have been largely insufficient to cover the scale
of investments needed.
Within this generally disappointing panorama, many outstanding examples of good performance have
nevertheless been identified. The experiences of the good performers in water and sanitation show that moving
forward requires ambitious reforms in institutions, legal frameworks and policies in order to change the structure
of incentives. They also point to the enormous benefits of strengthening capacity on the ground, notably at local 7
level where most water management is undertaken, and developing monitoring mechanisms to follow progress
and adopt corrective measures as necessary. They also demonstrate the need for cross-subsidisation between
wealthier and poorer users, and between water and sanitation, as well as the identification of those polluting industries
that should bear the costs of abatement. On the issue of financing, public-private partnerships need to be encouraged
and international effort has to be redoubled to mobilise resources for water and sanitation in Africa.
Looking ahead, economic prospects for 2007 and 2008 are in aggregate positive, though, in view of the likelihood
of a softening in non-oil commodity prices, substantial differences are expected between the experiences of net
oil-exporters and oil-importers. Resource-rich countries will need to ensure that a large part of the windfall gains
now accruing to their treasuries due to favourable terms of trade is directed towards supporting medium- and
long-term development: emphasis will need to be placed on investments in infrastructure and human capital.
Net oil-importing countries will need to ratchet down inflation to single-digit levels while minimising the impact
on growth.
Though the economic prospects are broadly favourable, most countries are of course starting from a very low
base. Human security continues to be severely affected by the vulnerability that accompanies extreme poverty.
Exacerbated by weak governance structures and by internal conflicts, this vulnerability is holding back private-
sector development and continues to impede the integration of African countries into the global economy. The
added impetus to the international community’s support to Africa given by the G8 Summit in St-Petersburg has
therefore been essential; the decision of the German presidency of the European Union to maintain this impetus
at Heiligendamm is to be warmly welcomed.
We are pleased that our two organisations have succeeded over the past six years in steadily increasing the
usefulness of the AEO in improving understanding of the changes that are shaping the economy of Africa. We
are proud to announce that this collaboration will continue in the future with the African Development Bank
taking the lead role in this partnership beginning with the 2007/2008 edition.
Donald Kaberuka Louka T. Katseli

President, African Development Bank Director, OECD Development Centre
Tunis Paris
April 2007

.
Part One
Overview
The African Economic Outlook is based upon the remain high, at 5.9 per cent and 5.7 per cent in 2007
experience and skills of the OECD and the African and 2008, respectively. Oil-exporting countries, however,
Development Bank to provide an annual snapshot of are outpacing others by a substantial margin. Moreover,
the economic condition of African countries. It is, some countries continue to face serious problems –
therefore, a reference point and a health check for the including the humanitarian catastrophe in the Darfur
continent as a whole, taking account of the international region of Sudan, the economic collapse in Zimbabwe,
situation and the influences of both internal factors conflicts and political unrest in Ethiopia, Côte d’Ivoire,
and of the global economy. In this Overview, we Somalia, and security problems in the oil-rich delta
provide an overall analysis of the state of Africa’s region of Nigeria, which are likely to dampen their
economies in a continental and global context, growth prospects. Nonetheless, the outlook for much
identifying and examining key features applied to the of Africa continues to be highly favourable. The
review of each country making up our sample. In this continued global expansion – albeit slowing somewhat
year’s edition, the special focus is on access to drinking – continues to sustain demand for oil and other
water and sanitation. industrial raw materials at relatively high prices. At the
same time, a significant increase in official development
The 31 countries examined in this sixth edition of assistance (ODA) to Africa, driven largely by debt relief
the African Economic Outlook account for some 86 per and emergency assistance, and improving 13
cent of Africa’s population and 91 per cent of its macroeconomic stability have all contributed to this
economic output. The countries are classified by sub- positive economic outlook. In addition, increased oil
region: and mineral production in Southern and Central Africa
• In North Africa: Algeria, Egypt, Morocco and and some improvements in the security situation have
Tunisia. boosted growth.
• In West Africa: Benin, Burkina Faso, Côte
d’Ivoire, Ghana, Mali, Niger, Nigeria and Senegal. Inflation, however, has returned to double-digit
• In Central Africa: Cameroon, Chad, the Republic numbers in net oil-importing countries, mainly due to
of Congo, the Democratic Republic of Congo, increasing oil prices. Current account balances have
Gabon and Rwanda. improved in many countries, with the largest gains for
• In East Africa: Ethiopia, Kenya, Madagascar, exporters of oil and metal ores, while some countries
Mauritius, Tanzania and Uganda. were adversely affected by higher import bills and lower
• In Southern Africa: Angola, Botswana, Malawi, prices for some agricultural products, cocoa and cotton
Mozambique, Namibia, South Africa and in particular. The windfall gains from commodity prices
Zambia. have improved public finances, notably in net oil-exporting
countries. These gains will need to be managed carefully
Ours is a comparative assessment and provides a with a sizeable proportion used for investment in transport
continent-wide perspective, drawing on the country and other infrastructure and in human resource
studies and supplementary analysis from the OECD development to lay the basis for sustained economic
Development Centre and the African Development growth once the current commodity boom has run its
Bank. course. In that respect, the Outlook identifies recent efforts
by a number of oil-exporting countries to improve the
Economic activity in Africa is estimated to have risen transparency of their petroleum-sector operations and
by nearly 5.5 per cent in 2006, and is expected to introduce fiscal rules for the use of oil revenue.

Overview
The challenge for net oil-importing countries is trends, only six African countries – most of them in
altogether different. While GDP growth is expected to North Africa – are likely to meet the key target of
remain buoyant in 2007 and 2008, inflation is now halving the share of the population living on less than
running at double-digit levels, mainly due to a more one dollar a day.
complete pass-through to consumers of the oil price
increases, and reducing inflation to single-digit levels In this regard, the years 2005 and 2006 witnessed
may have adverse consequences for growth. Moreover, the development of a series of new initiatives aiming
the GDP growth forecasts in this edition of the AEO at providing increased and more effective aid in the run
are associated with increases in current-account deficits up to 2015. Outside the Doha Round, the lifting of
that result from sustained higher oil prices even while quota restrictions on trade in textiles and clothing from
the boom in non-oil commodity prices appears largely the beginning of 2005 has presented a difficult challenge
to have run its course. Thus, the forecasts assume that to textile-exporting countries in Africa (including North
the additional funds required to finance the deficits will African countries, Madagascar, and Mauritius), due to
be forthcoming. This set of challenges for their vulnerability to competition from Asian countries,
macroeconomic policy is one of the risks that must be and, in particular, China.
borne in mind in assessing the current economic outlook
for Africa. With the recognition of its critical role in economic
growth and poverty alleviation, the focus on promoting
Another challenge is associated with the widening good governance has intensified in recent years. The
of the large imbalances in the global economy. Should NEPAD has played an important role here. Thus, the
these unwind in a disorderly fashion, with sharp sudden African Peer Review Mechanism is expected to provide
14 movements in exchange rates, a precipitous decline in a candid assessment of African countries and to foster
world output and, thus, demand for African exports, progress in governance. Ghana, Kenya and Rwanda have
cannot be excluded. already completed such a review. The Outlook notes that
democracy has started to take root in a number of
After a significant decline throughout much of the countries in the last decade, through, for example,
last decade, aid levels have increased in recent years substantial progress in the electoral process, while
and Africa is the continent that has benefited the conflicts have started to subside. Corruption, however,
most. The launch of NEPAD, the Monterrey continues to be prevalent in many countries and, despite
consensus on financing for development in 2002, progress in macroeconomic management and the
and the implementation of the Enhanced Heavily regulatory environment, more needs to be done to
Indebted Poor Countries (HIPC) initiative and the ensure an environment conducive to private-sector
commitments made at the G8 Gleneagles Summit development.
(2005) which are expected to further ease external
debt burdens significantly – have all played important
roles in increasing flows of development finance to International Environment
Africa. Nonetheless, it remains to be seen whether the
amount of aid will continue to increase, once the Growth in the OECD Area
temporary surge in debt relief and emergency aid has
passed. The question is, therefore, whether donors will GDP growth strengthened somewhat to 3.2 per cent
be able to mobilise sufficient resources to meet their in 2006, the fifth year of the current expansion in
commitments, which already fall well short of the OECD countries, up from 2.7 per cent in 2005 despite
amounts required to help most countries attain the the persistence of sharply higher oil prices. Prospects
Millennium Development Goals (MDGs) by 2015. are for some slowing of growth, to 2.5 and 2.7 per
Thus, an assessment of progress on the MDGs cent in 2007 and 2008, respectively (Figure 1), with
confirms the diagnosis of last year’s AEO; on recent growth rates becoming more similar across OECD

Overview
regions1. A sharp slowdown of growth in the United policies, low long-term interest rates, and a stable
States was precipitated by a sharp correction in outlook for inflation. However, prospects for 2007
residential investment that began in the second quarter and 2008 are for some tightening of monetary policies
of 2006 and is expected to continue in 2007. However, in most countries and less expansive fiscal policy.
other components of domestic demand remain robust. Outside the OECD area growth has continued to be
The expansion in Japan, led initially by exports, has especially buoyant in Asia, led by continued rapid
spread to fixed investment by enterprises and household growth in China and India. World trade growth
consumption, but GDP growth is expected to be accelerated to 9.6 per cent in 2006, up from a strong
considerably slower than in 2005 and 2006. Domestic 7.3 per cent in 2005 and is expected to remain buoyant
demand in the euro zone accelerated markedly in the averaging about 8 per cent in 2007 and 2008.
second half of 2006. Investment followed by
consumption is now driving growth as the employment This strong growth in the OECD area and in Asia
performance has strengthened. By and large, GDP has helped sustain African economic activity in 2005
growth in the OECD countries in the near term is and 2006, led by growth in export volumes, which
expected to exceed or closely approach potential growth, averaged about11.5 per cent per year. The robust growth
thus eliminating the output gap and leading to an in import demand expected for the OECD countries
increase in fixed capital formation. Growth has and Asia in 2007 and 2008 augurs well for sustaining
continued to be underpinned by accommodative fiscal demand for African exports during the next two years.
15
Figure 1 - Growth in OECD Countries
—— United States —— European Union —— Total OECD
%
5
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: OECD (2006), OECD Economic Outlook, December.

http://dx.doi.org/10.1787/735165510457
1. Source: OECD (2006), OECD Economic Outlook, December.

Overview
Exchange Rates 12 per cent against the euro in 2005 due to large inflows
of financial capital, the US dollar shed those gains in
Concerns over the sustainability of flows needed to the course of 2006 and continued to weaken in early
finance the US current account deficit persist. They had 2007. Thus in January 2007, one euro purchased nearly
already led to significant exchange rate adjustments, 48 per cent more dollars than in January 2002
which strengthened the competitiveness of US exports (Figure 2). Changes against other currencies, however,
vis-à-vis the euro area and Japan during the three year have been more moderate; and, overall, exchange-rate
period, 2002 – 2004. After strengthening by about adjustments have remained orderly.
Figure 2 - US$ per Euro and per Rand (base 100 in January 2001)
—— Euro —— Rand
160
150
140
130
120
110
100
90
80
70
16 60
50
40
jan-01 july-01 jan-02 july-02 jan-03 july-03 jan-04 july-04 jan-05 july-05 jan-06 july-06 jan-07
Source: www.x-rates.com.
http://dx.doi.org/10.1787/330475308837
The weakening of the US dollar against the euro respectively). In domestic currency terms, however,
during 2006 led to a modest appreciation of the effective the impact of these price hikes was dampened somewhat
exchange rate in the Franc Zone, in the real effective for many countries because of the depreciation of the
exchange rates of the West African Economic and dollar over the same period.
Monetary Union (WAEMU). However, the South
African rand and those countries whose currencies are The general rise in global commodity prices has had
pegged to it weakened against the US dollar and even a positive impact on the trade balances of many African
more so against the euro. These developments partly countries, although higher oil prices have hurt oil
reversed the sharp appreciation of these same currencies importers. The countries with the largest gains have
that had occurred in 2002/04, strengthening the generally been exporters of oil and metal ore. For most
competitiveness of non-traditional exports. other countries, gains from higher-priced commodity
exports vis-à-vis the prices of manufactured imports have
Raw Material Prices been roughly equivalent to losses from higher priced
oil imports. However, a number of countries have faced
Strong world demand and supply shortages were net losses reflecting lower prices for some agricultural
responsible for commodity prices rebounding sharply products – cocoa (down nearly 12 per cent between
during the global recovery. In nominal dollar terms, 2003 and 2005) and cotton (down about 14 per cent
metals and minerals, and oil prices increased the most over the same period). The dependence of many
between 2000 and 2006 (up about 159 and 128 per cent, countries on commodity market developments remains

Overview
a key vulnerability over the medium term. Careful average $/barrel 60 per year in both 2007 and 2008.
management of the windfall gains from the increase in High oil prices have slowed but not derailed the global
commodity prices is key to avoiding boom-bust cycles expansion; however, oil price uncertainty will continue
that can result from price volatility. to be a major risk factor for economic growth in the
near term.
Oil
Metals
The rise in crude oil prices to record nominal
highs has been accompanied by higher price volatility Metals prices continued to increase in 2006 to
(Figure 3). This surge in prices in 2005, which was reach average levels 127 per cent higher than the average
largely unanticipated, reflected a number of factors, price in 2000, in large part because of China’s high
including: the level and growth in the global demand demand for metals. They are expected to decline slightly
for oil as the global recovery has taken hold; the (by 6 per cent) in 2007 and by a further 17 per cent
disappointing growth in oil production and the in 2008, but to remain higher than in 2004. The price
tensions in oil-exporting nations – particularly Iraq, of gold has escalated since mid-2001, triggered by the
Nigeria, Russia and Venezuela – and a confrontational reduction of producer hedging – as interest rates lowered
stance with Iran; the low levels of spare oil production – and by international uncertainty; this benefited South
and refining capacity temporarily aggravated by Africa, the world’s leading producer, and other African
hurricane-related damage in the Gulf of Mexico; and gold producers, such as Ghana and Mali – although
the low inventories of crude oil in the OECD the strength of the rand and the CFA franc dampened
countries. Weather-related problems did not figure in the impact of buoyant commodity prices in South
2006, and there was some easing of political tensions. Africa and Mali especially in 2005. 17
But with excess capacity still very low, prices are likely
to remain high, especially if the global expansion Prices of other metals also rose substantially in
remains solid. The average crude oil price (Brent) 2005 and 2006. Copper prices rose by 83 per cent in
increased from $/barrel 38.2 in 2004 to $/barrel 54.4 2006 following a 28 per cent increase in 2005 as the
in 2005 and $/barrel 65.2 in 2006. The assumption market remained in deficit on strong demand and
used in this report is that it will fall back slightly to marginal growth in supply; since then, prices have been
Figure 3 - Prices of Oil and Metals (base 100 in January 2001)
—— Petroleum —— Gold ----- Copper ----- Aluminium
490
450
410
370
330
290
250
210
170
130
90
50
Source: World Bank.

http://dx.doi.org/10.1787/824402588583

Overview
volatile and began to decline in the second-half of Agricultural Products

2006. Prices in 2007 are expected to fall by about
14 per cent and by a further 25 per cent in 2008. Gains Prices of tropical commodities have been volatile
in aluminium prices have been more modest over the and have generally performed poorly (Figure 4). Cocoa
last two years but continued to strengthen in 2006, prices reflected the uncertainties generated by the civil
because of the large expansion of primary aluminium conflict in Côte d’Ivoire, the world’s largest cocoa
capacity and exports to China. Zambia (for copper) and producer and exporter. Following record lows in early
to a lesser extent Mozambique, Ghana, Cameroon and 2000, prices recovered to reach new highs in early
Guinea benefited from these increases. Metals prices 2003, then fell sharply as a significant supply response
are expected to decline cumulatively by about 18 per occurred, and fluctuated around a narrow range during
cent in 2007 and 2008. the period 2004/06.
Figure 4 - Prices of Tropical Beverages (base 100 in January 2001)
—— Cocoa ----- Tea —— Coffee (arabica) ----- Coffee (robusta)
300
250
200
150
18
100
50
0
Source: World Bank.

http://dx.doi.org/10.1787/807530736514
The prices of coffee, exported by many African about the same levels in 2007 and 2008. The outlook
countries, increased substantially in 2002; they held is not favourable, given the declining trend in
fairly steady (increased for the Arabica variety) in 2004 consumption growth and the continued growth in
and then increased sharply in 2005 (by 41 and 43 per output.
cent for Robusta and Arabica varieties, respectively),
recovering the levels of early 2000. They fluctuated Cotton prices rose by slightly more than 4 per cent
around these higher levels throughout 2006, with the in 2006 recovering a small part of the losses in 2004
Robusta variety moving sharply upward in the second and 2005. By the end of the year, they were about
half of the year. Little change in their current levels is where they had been in mid-2003 (Figure 5). They are
expected in 2007 and 2008 because the fundamentals not expected to improve much in 2007 and 2008,
for coffee remain weak, with little growth expected in perhaps gaining another 3 or 4 per cent cumulatively.
consumption while global stockpiles remain abundant. This drop has substantially lowered export earnings in
countries like Mali, Benin, and Burkina Faso for the
Tea prices in 2006 were little changed compared past two years. The cotton price illustrates the problems
with 2004 or 2005, but are still about 12 per cent encountered by some of the poorest sub-Saharan
below their 2000 levels, and are expected to remain at countries in the context of trade distortions. West and

Overview
Central African countries produce low-cost, high-grade The “cotton initiative” launched in September 2003
cotton, but face unattractive world prices, which have by four West African countries (Benin, Burkina Faso,
been dampened by the provision of substantial subsidies Mali and Chad) to end cotton subsidies in WTO
from developed countries in recent years. An additional member countries was finally included in the WTO
burden for the cotton-producing countries in the CFA General Council decision reached in mid-2004 on the
zone has been the appreciation of the euro against the framework to proceed with agricultural negotiations.
US dollar since 2000. At the WTO Ministerial Meeting in Hong Kong,
Figure 5 - Price of Cotton (base 100 in January 2001)
130
120
110
100
90
80
70
60
50
40 19
Source: World Bank.
http://dx.doi.org/10.1787/451820817024
further progress was made, including setting a timetable in 2005. This represents 0.33 per cent of the
for its implementation. However, with the suspension combined gross national income of members of the
of negotiations this potential improvement is on hold. OECD’s Development Assistance Committee
In the meantime, there is a need to speed up the (DAC), up from 0.26 per cent in 2004 and the
process of providing assistance to African producers highest ratio since 1992.
until the removal of subsidies results in higher world
prices. In the present situation of low prices, distorted About 70 per cent of the real increase between
by subsidies, African production costs are above the 2004 and 2005 ($18 billion out of $25 billion) is
world price, which threatens cotton production in explained by debt relief, heavily dominated by the
countries where the sector is key – an estimated Paris Club settlements for Iraq and Nigeria. Thus the
12 million people are dependent on cotton for their increase was heavily concentrated by recipient country,
livelihood in West Africa. and delivered in a form which does not provide new
transfers to the recipient. Humanitarian aid also
Official Development Assistance (ODA) increased for the second successive year. Much of this
increase was concentrated in Iraq and Afghanistan.
Official Development Assistance has been As a result, ODA other than humanitarian aid and debt
growing steadily since the beginning of the decade, relief to the vast majority of recipients rose only very
with net ODA disbursements reaching $107 billion slightly in real terms.2
2. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.

Overview
If all the commitments made in 2005 to increase intentions will be their willingness to increase the
aid are met, including the pledge to double aid to funding for the next replenishments of the World Bank
Africa announced at the G8 summit in Gleneagles, and African Development Bank soft funds, the
ODA from DAC donors alone will rise by almost International Development Association and the African
$50 billion in real terms between 2004 and 2010, to Development Fund. These institutions also need to
nearly $130 billion (at 2004 prices and exchange rates)3. be compensated for the costs of the Multilateral Debt
Yet the expected increase of ODA is less impressive Relief Initiative (MDRI)5.
when measured as a share of gross national income
(GNI). The estimated figure for 2010 (0.36 per cent Some encouraging signs of additional aid volumes
of total DAC GNI) would only marginally exceed the have come from the launch of innovative forms of
average level of 1980-92 (0.33 per cent), and would development assistance. In January 2006, six OECD
still fall short of the estimated financing required for countries established the International Finance Facility
countries to attain the MDGs by 2015. for Immunisation, which is expected to scale up the
annual spending on vaccines to $500 million, averting
In addition, according a partial survey of DAC up to 500 000 child deaths a year. 19 OECD and
members carried out in 2006, aid commitments to non-OECD countries have undertaken initial steps
2008 appear to fall well short of the trend increases to introduce an air-ticket solidarity levy, and which
required by many DAC members to reach their 2010 may raise a total of $1 to 1.5 billion a year for
targets. The sharp rise of ODA in 2005 is likely to be development purposes. Three OECD countries have
short-term, since future debt deals are unlikely to match also agreed on Advanced Market Commitments – a
the scale of relief granted to Iraq and Nigeria. market based mechanism to support research and
20 development of vaccines.
This issue is particularly worrying in the case of
Africa, to which donors have promised to double Flows from charitable and philanthropic
ODA between 2004 and 2010. Debt relief to many foundations are also on the increase, from $7 billion
African countries is now complete, and total debt in 2000 to over $11 billion in 2004. They seem likely
relief is likely to fall sharply from 2007. To date, debt to continue to rise, especially in the areas of
reduction packages have been approved for 30 humanitarian aid and research into vaccines and tropical
countries, 25 of them in Africa, providing $35 billion diseases (for example in 2004, the Bill and Melinda
(net present value terms as of the date of reaching the Gates Foundation spent over $800 million on
decision point) in debt-service relief over time4. Other international health programmes).
forms of aid will therefore need to rise very fast – on
the order of 10 per cent per year in 2008-10 – to Although aid from DAC members will continue
compensate. This will mean increasing tax payer- to account for close to 90 per cent of total ODA, non-
funded aid faster than almost all other forms of public DAC members are also helping to increase total aid
expenditures in donor countries. volumes. For example, Korea has decided to increase
its ODA to 0.10 per cent of its GNI by 2010, which
According to the DAC Development Co-operation implies more than doubling its aid to around $1 billion
Report, a particularly significant test of donors’ in that year. Other non-DAC OECD member countries
3. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.

4. IMF Fact Sheet December 2006
5. The MDRI was proposed by the G8 countries in June 2005 to cancel all the multilateral debt held by the World Bank’s International
Development Association (IDA), the IMF and the African Development Bank’s African Development Fund (ADF), incurred before 1
January 2005 with the IMF and the ADF, and before 1 January 2004 for the IDA.

Overview
such as Turkey, Mexico and several European countries investment and non-concessional financial flows. There
also have ambitious plans to scale up their aid by 2010. may be a risk, however, of compromising debt
The non-DAC OECD members of the EU (the Czech sustainability efforts in the poorer and more aid
Republic, Hungary, Poland, and Slovakia) and the dependent countries.
other new EU members committed themselves to reach
0.17 per cent of GNI by 2010 and 0.33 per cent by While non-DAC and non-traditional donors are
2015. Official flows from Middle East and other OPEC augmenting the resources available to help developing
countries are also expected to increase, mainly in the countries to reach all the MDGs, this recent trend
form of loans for project finance. China is also becoming poses new challenges for harmonisation and alignment
an important donor. The November 2006 “Beijing with recipient country priorities. Non-DAC donors
Action Plan” launched in the Forum on China-Africa are a heterogeneous group; the degree to which non-
Cooperation (FOCAC) resulted in commitments to DAC donors apply DAC approaches and norms as
double the size of China’s assistance to African countries regards the provision of aid varies from country to
by 2009. Although increasingly important, China’s country. In addition, the limited data on non-DAC
ODA programmes are likely to be less significant to ODA makes it difficult accurately to assess aid volume
developing countries than the effects of its trade, direct and prospects from these sources.
21
Figure 6 - DAC Members’ ODA: 1990-2005 and Simulations to 2006 and 2010,
based on Commitments at Monterrey and Since
Total ODA (right scale)

ODA as a % of GNI (left scale) Total ODA to Africa (right scale)
% of GNI ODA ($ billion) 2004
0,40 150
0.36
0,35 0.33
0.33
120
0,30
0,25 0.26 90
0.22
0,20
60
0,15
0,10
30
0,05
0,00 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: OECD/DAC statistics (2007)

http://dx.doi.org/10.1787/573526007704

Overview
Growth of Aid to Africa The challenge of the HIPC initiative, and of the
Multilateral Debt Relief Initiative (MDRI), is to
Africa’s share of total ODA, which had fallen to ensure that the resources that are freed from debt
36 per cent by 1999, recovered to 42 per cent in 2004- repayment are channelled to expenditures on health,
056. This rise was driven largely by debt relief and education and other social services. Although most
emergency assistance, which reached 27 per cent and of the HIPC countries have increased their spending
11 per cent of total ODA respectively in 2005, more in social sectors, difficulties remain to ensure that
than tripling their shares since 2000. Emergency aid money is redirected to social priorities in fragile states.
from DAC countries, the World Food Programme, For example, in Rwanda and Ethiopia, large new
the European Commission and UNHCR has been loans are being contracted to meet pressing
channelled to relief and reconstruction in areas affected reconstruction needs while old debt is simultaneously
by drought, especially in Southern and Western Africa, being retired. Other countries face challenges to meet
and in fragile states, notably in Sudan. the criteria for reaching the HIPC decision point due
to uneven policy records or poor governance resulting
Nigeria was the top recipient of ODA in 2005, from civil conflict.
receiving about 16 per cent of total aid to Africa (about
$6 billion out of total commitments to Africa of Finally, even after debt relief under the HIPC and
$37 billion). About 85 per cent of aid to Nigeria was MDRI initiatives is fully implemented, maintaining a
accounted for by debt relief. The other largest African sustainable level of debt service while seeking the
recipients included several among the 17 which have additional financing needed to make progress towards
achieved their Heavily Indebted Poor Countries the MDGs will be a challenging task. For example,
22 initiative (HIPC)7 completion point or are in the some countries might be tempted to use their improved
process of doing so. Debt relief accounted for more than creditworthiness to access international capital markets
50 per cent total aid in Zambia, about 40 per cent in or export credits and loans with low levels of
Ghana, and about 30 per cent in the Democratic conditionality, including from non-DAC donors, risking
Republic of Congo. a return to high and unsustainable debt levels.
Box 1 - Public Debt Management and Bond Markets in Africa8
The volume of government debt as a percentage of GDP varies across African countries. Some countries have low to moderate burdens,
while in others the level is well in excess of 100 per cent of GDP. In between are countries where the level is in line with that of many
OECD countries. The difference, however, is that the economies of African countries are typically more susceptible to shocks, which
affects the ability of governments to service their debt. This is the case even after benefiting from external debt relief, as many African
countries have under multilateral initiatives.
Modern public debt management practices are used by only a handful of countries. As a result government securities markets in
Africa generally remain rudimentary compared with markets in middle-income and more developed economies. Going forward, risk-
based debt sustainability needs to remain a focus of debt strategy in Africa because volatility in the macroeconomic environment is high,
often due to external shocks.
6. Based on region-allocable ODA only.

7. The HIPC initiative, started in 1996, is a comprehensive approach to debt reduction for heavily indebted poor countries pursuing IMF
and World Bank supported adjustment and reform programmes.
8. This analysis is based on an OECD project on African Public Debt Management and Bond Markets. The authors, Greg Horman and
Hans Blommestein, are Financial Analyst and Project Manager, respectively.

Overview
Box 1 - Public Debt Management and Bond Markets in Africa8 (cont.)
Foreign-currency debt is more important than local-currency debt in most African countries. Foreign-currency borrowing typically
offers lower interest rates and longer tenors than local-currency borrowing. The predominance of foreign-currency debt in general reflects
the availability of, and continued reliance on, concessional multilateral and bilateral funding but this may entail a currency mismatch
with foreign exchange earnings that can increase a country’s vulnerability. The lack of a developed domestic debt market can lead to
budgetary volatility if the government is unable to draw on domestic funding sources in the event of drop-off in external funding or
grants. A few African countries borrow successfully on the international bond markets, but they tend to be the ones with more developed
domestic markets as well.
A number of African countries have used local-currency funding to some degree since the 1980s, and more recently many countries
have taken steps to develop their domestic markets. The few countries where local-currency debt constitutes the larger share of the debt
portfolio have higher levels of per capita GDP, investment, and savings; stronger financial and banking sectors; more diverse private sectors;
and a lower reliance on concessional funding from external sources.
In much of Africa, however, the issuance of debt in the domestic market often remains erratic and in small volumes, leading to
problems in developing liquid instruments and benchmarks. Local-currency debt is also primarily short-term. One consequence is that
African governments are exposed to significant levels of refinancing risk in respect of their local-currency debt.
Although a few countries issue bonds with tenors of 10 or even 20 years, in many African countries government yield curves do not
extend beyond five years at the longest, and even in those countries where the curves do extend over longer periods, liquidity tends to
be concentrated in the shorter maturities.
Interest payments on local-currency debt often consume a higher share of the budget than interest payments on foreign-currency
debt, even though local-currency debt makes up a lower share of outstanding debt. This is because the interest rates in African domestic
markets tend to be relatively high compared with the interest rates prevailing for foreign-currency borrowing, although borrowing in 23
local currency has the advantage of avoiding exposure to exchange rate risk. An important policy question for African governments is
the appropriate balance between minimising cost and risk, in particular taking account of the major risks (interest rate, exchange rate,
and refinancing) and the possibility of other budgetary shocks, such as from a sudden drop-off in aid inflows.
In most African countries, local commercial banks represent the largest category of holders of government securities, often in excess
of 50 per cent of outstanding debt. Participation of institutional investors and non-residents is relatively limited in most countries. This
reflects, among other factors, capital account restrictions, limited information on creditworthiness, a perception of high country risk,
and weak legal and regulatory infrastructures. Narrow investor bases, a tendency to hold to redemption, and the absence of entities prepared
to commit risk capital to dealing in government securities contribute to a general lack of secondary market liquidity.
An important policy question for many African countries is what priority to give to stimulating a diverse investor base and developing
market-based instruments, trading facilities, and distribution networks that suit the needs of investors.
Source: Public Debt Management and Bond Markets in Africa, OECD, Paris (forthcoming).
Much of the recent increase in ODA to Africa was in 2004. It remains to be seen whether the absolute
accounted for debt forgiveness and emergency aid, amount of this core development aid will rise once the
with loans and grants for programmes and projects temporary surge in debt relief and emergency aid has
remaining almost unchanged in 2005 (see Figure 7). passed.
The social sectors and governance accounted for about
30 per cent of ODA in 2005 while aid for economic The European Commission, France, the United
infrastructure and production sectors was about 17 per States, and the United Kingdom are the leading donors
cent, compared to 36 per cent and 18 per cent in Africa, accounting for 51 per cent of total aid in the
respectively in 2004. Programme aid accounted for region, followed by Germany, Japan and the
about 9 per cent of total ODA compared to 12 per cent Netherlands.

Overview
Figure 7 - Net Official Development Assistance to Africa (all donors, constant 2004 $ billion)
■ Other ODA ■ Bilateral debt forgiveness ■ Emergency aid

$ billion 2004
35
30
25
20
15
10
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: OECD/DAC statistics (2007)

http://dx.doi.org/10.1787/532023360860
24
Donors have continued to focus on a small number Declaration on Harmonisation of 2003 to reduce the
of countries which have historically benefited from transactions costs associated with in aid, encourage
large aid flows: Egypt accounted for 37 per cent of more harmonised, joint efforts among bilateral and
flows to North Africa, while Nigeria, Ethiopia, Sudan, multilateral donors, and enhance aid effectiveness
the Democratic Republic of Congo, Tanzania, the through results-based approaches. It is particularly
Republic of Congo, Mozambique and Zambia noteworthy that all G-20 countries signalled their
accounted for half of total ODA to sub-Saharan support for the Paris Declaration at the G-20 meeting
countries in 2005. in Melbourne in November 2006.
Despite the encouraging trend of increasing aid to The aid effectiveness agenda stresses ownership by
Africa, the MDGs remain underfinanced and most of recipient countries, alignment of external aid to local
Sub-Saharan Africa is far from reaching most of the eight priorities and local delivery channels when these meet
goals. adequate standards, harmonisation and simplification
of donor procedures, a stronger focus on achieving real
Progress in making aid more effective results by both recipient countries and donors, and
greater mutual accountability for those results. A set
In addition to the commitment by donors to of indicators has been established to measure progress
increase ODA volumes, steps have been taken by the in this regard.
international community and African governments to
improve the quality of aid. The international effort on According to the 2006 Baseline Survey on
aid effectiveness has been gaining momentum since Monitoring the Paris Declaration, about 60 countries
2005 when over 100 partner countries and donors have undertaken actions in support of the Paris agenda.
endorsed the Paris Declaration on Aid Effectiveness. Substantial progress has been made in a number of
The participants renewed pledges made in the Rome African countries including Burkina Faso, Ethiopia,

Overview
Ghana, Mozambique and Tanzania in terms of Against the prospect of scaling up of aid, progress
harmonisation actions (joint analytical work, joint in the Paris agenda and especially more co-ordination
programming and assistance strategies, programme- among aid delivery channels (bilateral funds, multilateral
based approaches, pooling of financing among donors funds, global funds, and private funds) will be all the
and use of country systems when feasible) which have more crucial. In particular, global funds need to support
helped reduce transaction costs. country-led strategies and priorities and avoid
undermining the capacity of national authorities for
Nevertheless, the survey suggests that greater coherent planning, financing and service delivery.
attention is needed in aligning aid flows with national
priorities and improving the transparency of the flows. The principles of the Paris declaration have been
There are still substantial discrepancies between the put at the heart of the Aid for Trade Agenda, aimed at
funds disbursed by donors and the information recorded helping developing countries benefit from WTO
in the recipient’s budget9. In addition, the survey agreements and expand their trade. The WTO tasks
suggests that only a minority of countries have put in force issued its recommendations in 2006, calling for
place mechanisms of mutual review of progress on aid donors active in the provision of aid for trade to abide
effectiveness commitments. by the principles enshrined in the declaration.
Box 2 - Dealing with Complexity: Health Financing in Ghana
The international development finance system has become complex, with a proliferation of financing instruments and new actors,
both public and private, entering the scene. How does this complexity affect a “donor darling” like Ghana, where ODA accounts for a
25
large percentage of GDP (12 per cent in 2003)?
A recent Development Centre case study identifies three major trends in Ghana’s health sector.
Firstly, donors have diversified their financing instruments. Secondly, household spending on health is growing and bypassing the
Ministry’s budget and purview. Thirdly, new actors have emerged as funding sources and implementing organisations.
This new complexity has important implications for policy makers in developing and donor countries alike. Firstly, they must work
together to strengthen information systems that can capture all flows and help craft effective policies. Strengthening information implies
building capacity in data collection and monitoring. More generally, it also requires that local actors and donor agencies recognise the
high potential of non-aid flows for development.
Secondly, further efforts are needed in implementing the Paris Declaration. Global programmes, for example, have attracted criticism
for contributing to a proliferation of co-ordinating mechanisms at country-level. HIV/AIDS matters, for instance, are now discussed in
meetings of the Ghana Aids Commission (GAC), the Partnership Forum, the Business Meeting, the UNAIDS Technical Working
Group, the GAC Sub-Committee, the Regional Aids Committee, and the District AIDS Committee.
Finally, it must be recognised that the major challenge for decision makers does not relate to finance alone, but to larger issues of
governance and administrative capacity. If recipient-country governments are to take the lead in managing development finance strategies,
they must improve co-ordination and communication between their own national public entities. As donors move to general budget
support in Ghana, for example, the Ministry of Health will need to develop new communication and negotiation skills vis-à-vis the
Ministry of Finance.
Source: Denis Drechsler and Felix Zimmermann, “New Actors in Health Financing: Implications for a Donor Darling”, OECD
Development Centre, Policy Brief No. 33, 2006.
9. OECD (2007) , DAC, 2006 Development Co-operation Report, Paris.

Overview
Box 3 - Improving the Effectiveness of Aid for Trade in Africa
The international community has long recognised the need to provide targeted trade-related technical assistance and capacity
building to promote the integration of developing countries, especially the least developed ones, into the multilateral trading system.
Donors have always provided substantial support to productive sectors and infrastructure to varying degrees long before the emergence
of the Aid for Trade concept. New is the recognition of trade as part of the overall development strategies of countries. Moreover, there
is increased awareness in the trade community of the importance of the so-called “supply side” constraints that hamper the ability of
developing country enterprises to reap the opportunities created by trade liberalisation.
The Doha Development Agenda adopted at the 2001 WTO Ministerial meeting reaffirmed this commitment stressing that the
successful trade integration of LDCs “requires meaningful market access, support for the diversification of their production and export
base, and trade-related technical assistance and capacity building (paragraph 42)”. Following the launch of the Doha round, the OECD
and WTO improved the monitoring of aid flows to strengthen trade capacities, or “aid for trade” (http://tcbdb.wto.org). Provision of
aid for trade has expanded significantly over the last few years, witnessing an increase in funding and in the number of donors and agencies
with explicit strategies and guidelines for aid for trade.
According to the WTO-OECD database, Africa is the largest recipient of trade-related technical assistance and capacity building,
receiving one third of the world total. In 2005 the international community committed $1.03 billion to the continent, a 6 per cent
increase in nominal terms over 2004. Africa also received $3.8 billion of aid to finance infrastructure, placing it as the second largest
recipient after Asia.
Aid commitments for Trade Related Technical Assistance and Capacity Building
and Infrastructure to Africa ($ million, 2005)
26 $ million Share of Global TRTA (%) Global TRTA
Trade Policy & Regulations 361 39.2 923

Trade Development 667 30.1 2 220
Total TRTA 1 029 32.7 3 143
$ million Share of Total Infrastructure (%) Total Infrastructure
Infrastructure 3 810 31.2 12 197
Source: WTO/OECD Trade Capacity Building Database.
In October 2006, the WTO General Council endorsed the recommendations of the WTO Aid for Trade Task Force. The
recommendations make several proposals to broaden the scope and enhance the effectiveness of trade-related development assistance.
The Task Force also adopted a broader definition of aid for trade by adding to the “traditional categories” of trade-related technical assistance
(trade policy and regulations and trade development) four new categories: (1) trade-related infrastructure, (2) building productive
capacity, (3) trade-related adjustment and (4) other trade-related needs.
In particular, they called providers of aid for trade to abide by the principles agreed in the Paris Declaration on Aid Effectiveness
(including country ownership, aligning aid to national development strategies, donor co-ordination, and harmonisation of donor
procedures). The recommendations insist on improved mainstreaming of trade into national development strategies and in country structures,
using country-based processes such as PRSP and Consultative Groups. In addition, they include proposals for mainstreaming trade and
growth issues in donor programming, including strengthening the trade expertise of donors. At global level, the recommendations point
at strengthening monitoring and evaluation, including by establishing a monitoring body in the WTO, reporting by recipient countries
on trade mainstreaming, reporting by bilateral donors, multilateral and regional agencies and the private sector on aid-for-trade activities.
Source: WTO/OECD Trade Capacity Building Database; Aid for Trade: Making it Effective. OECD (2006); The International Architecture
of Aid for Trade, joint SECO-OECD Development Centre Report (2007), forthcoming.

Overview
In parallel, with initiatives to improve aid effectiveness, They set up the African Partnership Forum, a process
G8 Heads and African leaders agreed on a comprehensive intended to give fresh political and strategic impetus to
package of measures to support Africa’s development. the currents of cooperation for Africa.
Box 4 - The African Partnership Forum
The Africa Partnership Forum (APF) is a unique international body established following the Evian G8 Summit in 2003 as a way
of broadening the existing dialogue between the G8 and the New Partnership for Africa’s Development (NEPAD) to include other African
institutions and Africa’s major bilateral and multilateral development partners. Its core remit is to catalyse action at the highest political
level in favour of African development. The APF monitors progress achieved in delivering on commitments its membership have
undertaken, identifies bottlenecks, and signals priorities for follow-up action. Members of the APF include “Personal Representatives”
of the Heads of State and Government of African and G8/OECD countries, as well as representatives of the Chairperson of the African
Union Commission and of regional and international institutions. The Forum is governed by four co-Chairs, two from Africa and two
from development partners.
At their October 2006 meeting in Moscow, APF members assessed progress achieved to-date regarding infrastructure, HIV/AIDS
and agriculture across the African continent. The analysis indicated that while encouraging advances had been made in the first two
areas, progress in achieving higher agricultural output and food security – a critical sector for poverty reduction — was lagging behind.
It urged African governments to intensify their efforts and development partners to provide increased and more effective support to this
sector in line with Paris Declaration principles.
Two additional papers on energy poverty and infectious diseases – related to 2006 G8 St Petersburg discussion topics – were also
discussed, and the following recommendations were agreed:
• While energy issues in Africa have not been high on the international agenda, secure and sustainable access to energy is essential 27
to achieving the MDGs. Mobilising the necessary investment – from both public and private sources – will require African
governments and donors to take concrete steps aimed at improving financial viability in the sector, creating a more hospitable
business climate to reduce risk and attract investors, and bolstering regional co-ordination and integration.
• Infectious diseases impose a heavy burden on Africa: the continent accounts for two-thirds of global mortality from AIDS, malaria
and tuberculosis. While the APF applauded efforts to tackle the “big three” – including through concerted government policy
implementation and the creation for special delivery mechanisms and funds – it warned that the continuing neglect of other major
debilitating diseases constitutes a ticking time bomb. The importance of reinforcing human resources in the health sector was
stressed, as well as the capacity of health systems at national level to tackle the infectious disease burden. APF members acknowledged
the importance of addressing the worrying gender dimensions of the escalating increase in sexually transmitted diseases (including
HIV/AIDs), and asked members to work more resolutely on promoting women’s empowerment and self-determination.
The Africa Partnership Forum will maintain a watching brief on developments in these areas and will report back to the membership
at regular intervals. At its spring 2007 meeting in Berlin, the APF will address investment, climate change, peace and security, and gender.
APF reports may be accessed at www.africapartnershipforum.org
Foreign Direct Investment FDI inflows remained small at 3 per cent. High prices
for minerals such as copper, diamonds, gold and
After a downturn in 2002, FDI flows to Africa platinum, and particularly for oil, along with the
recovered in 2003 (+ 39 per cent) and remained relatively resulting improved profitability of investment in natural
stable in 2004 ($18 billion)10. Still, Africa’s share in world resources encouraged foreign investment in the region.
10. Sources: UNCTAD (2006a), World Investment Report, Geneva, and UNCTAD (2006b), Global Investment Prospects Assessment
2005-2008, Geneva.

Overview
Inflows rose in 40 out of the 53 countries in Africa, exceeded $1 billion (more than $3 billion for Egypt,
though they fell in 13, including in some of the region’s Nigeria and South Africa in particular). Inflows to
top FDI recipients such as Angola, Morocco and South Africa were also the most diversified:
Nigeria. Cross-border mergers and acquisitions (M&As) investment was channelled into energy, machinery
in the mining industry increased to more than three and mining, as well as into banking, which received
times their 2003 value. The five top home countries the largest share.
of FDI for Africa in 2004 were France, the Netherlands,
South Africa, the United Kingdom and the United At the other extreme, FDI inflows remained below
States, together accounting for well over half of the flows $100m in 34 African countries. These are mostly least
to the region. developed countries (LDCs), including oil-producing
Angola, which witnessed a drastic decline in FDI
Africa received record high foreign direct investment receipts in 2005. Many of the low FDI recipients in
(FDI) inflows in 2005 of $31 billion, but this was the region have limited natural resources; lack the
mostly concentrated in a few countries and industries, capacity to engage in significant manufacturing, and,
says the UNCTAD World Investment Report 2006, FDI as a result, are among the least integrated into the
from Developing and Transition Economies: global production system. Some countries have also
Implications for Development. A sharp rise in corporate experienced political instability or civil war in the recent
profitability and high commodity prices over the past past, which destroyed much of their already limited
two years helped produce a growth rate of 78 per cent production capacity.
in FDI inflows to the region. Prospects are good for
another increase in 2006 given high project FDI inflows to the region were concentrated in
28 commitments, large numbers of investors eager to gain a few industries, such as oil, gas, and mining. Six oil
access to resources, and a generally favourable policy producing countries (Algeria, Chad, Egypt,
stance for FDI in the region. FDI continued to be a Equatorial Guinea, Nigeria and Sudan, in descending
major source of investment for Africa as its share in gross order of the value of FDI) accounted for about 48 per
fixed capital formation increased to 19 per cent in cent of inflows to the region. Although countries such
2005. However, the region’s share of global FDI as Kenya, Mauritius, Lesotho, Swaziland and Uganda
remained low at about 3 per cent in 2005. In the had begun to receive FDI for their textile and apparel
manufacturing sector, a number of transnational industries due to the African Growth and
corporations (TNCs) in the textile industry pulled out Opportunity Act (AGOA), the trend changed
of Africa because quota advantages for African countries following the end of the MFA in 2005. In Mauritius
declined after the end of the Multi-fibre Arrangement there was a 30 per cent contraction in the volume
(MFA) in 2005. of garments manufactured in 2005 following the
departure of Hong Kong (China)-owned companies.
South Africa was the largest FDI recipient in the In Lesotho, six textile TNCs closed, with a loss of
region in 2005, experiencing a sharp jump in inflows 6 650 jobs. The setback demonstrates that the impact
to $6.4 billion from only $0.8 billion in 2004. South of trade-related initiatives can be short-lived in
Africa accounted for about 21 per cent of the region’s Africa, where domestic capabilities are inadequate
total. This was mainly due to the acquisition of for quickly absorbing and continuing production
Amalgamated Bank of South Africa by Barclays Bank processes. It also underscores the fact that Africa’s
(UK) for $5.5 billion. Africa’s top 10 recipient industrial progress requires competitive production
countries – South Africa, Egypt, Nigeria, Morocco, capacity, in addition to better market access and
Sudan, Equatorial Guinea, the Democratic Republic more welcoming regulatory frameworks. The
of Congo, Algeria, Tunisia and Chad, in that order persistence of the critical capacity problem may
– accounted for close to 86 per cent of the regional continue to hamper the region’s ability to attack and
FDI total. In eight of these countries, FDI inflows retain FDI in the manufacturing sector.

Overview
FDI outflows from Africa in 2005 remained small countries have greater potential to attract FDI than
and originated from a few countries. Six home countries those in sub-Saharan Africa. South Africa and China
– Egypt, Liberia, Libya, Morocco, Nigeria and South were the most frequently cited as potential sources of
Africa – accounted for over 80 per cent of total outflows. FDI. In recent years, Chinese MNCs have expanded
The largest African TNCs are also from a small number their resource-seeking and manufacturing activities
of countries. In 2004, Orascom Construction (Egypt) on the continent, and Indian firms have begun to
also made it onto the list. South Africa’s top TNCs invest in IT-related services.
were: Sasol Ltd (industrial chemicals); Suppi Ltd (paper);
MTN Group Ltd (telecommunications); Steinhoff A relatively new phenomenon is the increase in
International Holdings (household goods); Barloworld FDI outflows (as opposed to portfolio flows and
Ltd (diversified); Naspers Ltd (media); Nampak Ltd capital flights, that have long been worryingly high)
(packaging); Gold Fields Ltd (metal and metal products) from African countries, which more than doubled in
and Datatet Ltd (diversified). (UNCTAD.org-World 2004. With the purchase of Italy’s second-largest
Investment Report 2006) telecom operator in 2005, Orascom of Egypt joined
the list of African MNEs, hitherto largely limited to
Continued high demand for commodities, a more South Africa.
stable policy environment and increasing participation
in infrastructure networks by African multinational Is Africa the next financial frontier to be explored
corporations (MNCs) boosted FDI in 2005. In the by private equity? CDC, an emerging markets private
short run, expectations for FDI inflows to Africa equity investor owned by the UK government, and
remain fairly positive, although investment promotion Citigroup has agreed to invest at least $200 million.
agencies are more optimistic than foreign MNCs. They join a small group of specialists who put money 29
Both experts and MNCs believe that North African to work south of the Sahara.
Box 5 - Private Equity in Africa
Private equity funds raised $557 million in Africa in 2005, a decrease of 42.7 per cent from 2004. In 2005 government and aid agencies
were the largest source of capital. Over half the funds raised were for additional investments in companies by investors who had invested
in the same companies at an earlier stage (so-called late stage funds).
Direct and portfolio equity investment combined reached $948.3 million in 2005 across Africa, of which South Africa recorded the
largest amount. The vast majority of total investments (96.5 per cent) was provided by domestic investors. Transportation services overtook
consumer products to account for most of the value of investment, attracting 132 domestic investments.
In 2006, a handful of emerging market specialists active in Africa raised new funds in international capital markets. Ethos closed subscriptions
to a $750 million fund in October 2006, Aureos Capital, which already runs three funds which total $140 million, is aiming to raise $400 million
and Citigroup also established a dedicated fund to invest at least $200 million in Africa.
Source: African Venture Capital Association, 2006 Yearbook and other sources
On paper, Africa has attractions. It certainly needs meanwhile, is a “major problem”, even for cash-
capital. Local equity markets, however, are small. generative companies, says the founder of Celtel, a
Excluding South Africa, sub-Saharan market private equity-backed mobile company recently sold
capitalisation is about $75 billion, even after some eye- to Kuwait’s MTC for $3.4 billion. And private equity,
wateringly speculative recent rises. Raising debt, out of the public eye, may handle risk better than most.

Overview
Macroeconomic Performances in grew by about 3.5 per cent. The main factors supporting
Africa this growth performance were strong external demand
for oil and non-oil minerals, increased investment in
Economic Growth these sectors, and good growing conditions for
agriculture in most countries. The continuation of
Africa as a whole exhibited real GDP growth of sound macroeconomic polices in most of the countries
5.5 per cent in 2006 – well above the long-term trend in the continent has also increased business confidence
for the fourth consecutive year – and GDP per capita leading to a pickup in private investment generally.
Table 1 - Average Growth Rates of African Regions (annual % change)

Region 1998-2004 2005 2006(e) 2007(p) 2008(p)
North Africa 4.5 4.6 6.3 6.0 6.0

West Africa 4.0 5.6 4.8 5.9 5.1
Central Africa 5.0 4.9 3.9 5.2 6.3
East Africa 4.0 6.4 5.1 5.8 6.0
Southern Africa 3.0 5.6 5.4 6.1 5.3
Total Africa 4.0 5.2 5.5 5.9 5.7
Memorandum Items:
Net Oil exporters 4.5 5.9 5.9 7.4 6.7
Net Oil importers 3.6 4.7 5.2 4.7 4.8
SANE * Countries 3.8 5.2 5.1 5.4 5.2

30 Other Countries 4.1 5.3 6.0 6.5 6.2
* South Africa, Algeria, Nigeria, Egypt
Note: Due to lack of data, these aggregates do not include Liberia and Somalia
Source: Various domestic authorities; IMF World Economic Outlook and authors' estimates (e) and projections (p).
http://dx.doi.org/10.1787/185107384555
Growth also appears set to accelerate somewhat on As in the previous two years, GDP growth was
average in 2007, and to remain buoyant in 2008 particularly strong in net oil-exporting countries, at
notwithstanding the recent softening of commodity 5.9 per cent in 2006, the same as in 2005, largely due
prices most of which are expected to weaken further to the increase in oil prices and, in some countries,
in the course of 2007 and 2008. However, this increases in production as well. However, the growth
continent-wide average masks considerable differences differential between these and net oil-importing
between net oil-exporting and other African countries, countries remains large with average GDP growth in
groupings that face very different challenges. The the latter of 5.2 per cent in 2006 (4.7 per cent in 2005).
challenge for the former and for some non-oil mineral
exporters is to ensure that a large proportion of the This generally strong GDP growth performance is
proceeds from the minerals sector are invested in expected to strengthen somewhat in 2007, when the
infrastructure and human capital development to average real GDP growth rate for the continent as a
support their medium- and long-term needs for whole is expected to be 5.9 per cent, with net oil-
diversification. For many of the others, especially in exporting and net oil-importing countries exhibiting
the second half of 2007 and in 2008, it will be to real GDP growth of 7.4 and 4.7 per cent, respectively
contain inflationary pressures now running at double- – a growth differential of more than 2.5 per cent. The
digit rates as a result of the recent oil price increases, projections for 2008 are for slightly lower growth for
and to finance or contain the expected increases in their the net oil exporters and about the same for the net oil-
trade deficits. importers as in 2007.

Overview
These forecasts are based on a number of plausible d’Ivoire – the largest economy within WAEMU.
but somewhat optimistic assumptions, suggesting that Growth also slowed in Senegal, due mainly to sharp
they are subject to significant downside risk. Apart reductions in the output of cereals and groundnuts,
from assuming continued moderate growth in the as well as industrial output, especially phosphates and
global economy, they also assume that oil prices stabilise fertiliser. The major positive development in the
at $60 per barrel in 2007 and 2008; that growing WAEMU was the sustained growth in agricultural
conditions in agriculture will be favourable in 2007 and production in several of them. In addition to buoyant
2008; that oil output will increase in 2007 as stability agricultural output, Mali benefited from high gold
is restored to the Niger Delta region; that no new prices, with the result that GDP growth remained
regional conflicts having significant macroeconomic high at 5 per cent in 2006 after an exceptionally strong
impacts emerge; and that the worsening current account 6.1 per cent in 2005.
balances forecast for many of the net oil-importing
countries will be fully financed. In this respect the Within the five non-WAEMU members (The
implementation of debt relief agreements for a number Gambia, Ghana, Guinea, Nigeria and Sierra Leone),
of the HIPC countries that began in 2006 will continue Nigeria – by far the largest economy in West Africa –
to be particularly helpful. exhibited GDP growth of 5.3 per cent in 2006 down
from 6.5 per cent in 2005 due to disruptions of oil
North Africa production in the Niger Delta. Projections for 2007
indicate an acceleration of Nigeria’s growth rate to
Real GDP growth in North African countries 7 per cent, mainly due to the recent increase in oil
averaged 6.3 per cent in 2006, significantly higher prices, but also to increased production. Guinea’s growth
than the 4.6 per cent registered in 2005. It is expected performance strengthened in 2006 (5 per cent up from 31
to remain high at.6 per cent, in both 2007 and 2008. 3.3 per cent in 2005), while Sierra Leone’s and Ghana’s
The high growth rates recorded in 2006 were largely performance continued to be relatively strong in 2006
due to the exceptionally high growth rates estimated (7.4 per cent and 6.1 per cent, respectively) with
for Mauritania (13.9 per cent) and Sudan (12.1 per cent) particularly good performance in cocoa production
mainly due to increases in oil and gas production, as and processing.
well as strong growth in Morocco (7.3 per cent) due
to a recovery of agricultural output with the ending of Central Africa
the drought, as well as in Egypt (6.8 per cent). The 2007
and 2008 growth rates in most North African countries Average GDP growth in Central Africa slowed to
are projected to be about the same as in 2006, or higher, 3.9 per cent in 2006. Projections indicate an increase
sustained by high prices for oil and gas, and strong in real growth to 5.2 per cent in 2007 and an acceleration
growth in tourism. of growth to 6.3 per cent in 2008. The slower growth
in 2006 was due mainly to an end of the rapid expansion
West Africa of oil production in Chad and Equatorial Guinea.
Thus, the trends among Central Africa’s ten countries
Economic growth in the countries of West Africa are very different, with the Central African Republic,
was 4.8 per cent in 2006, substantially less than in 2005; Rwanda and São Tomé and Principe showing clear
it is projected to accelerate to 5.9 per cent in 2007 and upward trends, while Chad, the Republic of Congo,
to remain high, at 5.1 per cent in 2008. In the West and Gabon are expected to exhibit GDP growth of
African Economic and Monetary Union (WAEMU), only about 2 per cent, at least in 2007. Growth is
consisting of Benin, Burkina Faso, Côte d’Ivoire, projected to remain broadly at 2006 levels for the
Guinea-Bissau, Mali, Niger, Senegal and Togo, Democratic Republic of Congo (6.2 per cent) due
economic performance continued to be negatively mainly to donor-supported reconstruction efforts, and
affected by the continued political turmoil in Côte to accelerate in Burundi (6.6 per cent in 2007 up from

Overview
6.1 per cent in 2006). The projections for Cameroon activity continued to decline in 2006, contracting by
and Equatorial Guinea show some strengthening of about 5 per cent. The projections for South Africa
growth for 2007 and 2008. indicate that GDP growth should remain robust at about
4.5 per cent in both 2007 and 2008, marking an
East Africa important break from the relatively slow growth rates
experienced over the past ten years. Overall, the average
Economic growth in East Africa averaged 5.1 per growth rate for Southern Africa is projected to increase
cent in 2006, and is projected to accelerate to 5.8 and from 5.4 per cent in 2006 to 6.1 per cent in 2007,
6 per cent in 2007 and 2008, respectively. Ethiopia, reflecting the projected near doubling of Angola’s growth
Tanzania, and Uganda continued to be the fastest rate from 14.8 per cent in 2006 to 27 per cent in 2007
growing countries within East Africa, growing at 5.9 per (largely due to rising oil sector activity in new oil fields,
cent, 5.7 per cent, and 5.4 per cent, respectively, in 2006. and to a lesser extent by increased diamond mining).
All three countries are also projected to broadly maintain
or increase these high growth rates in 2007 and 2008, Inflation
exhibiting broad-based growth, but led in some cases
(Uganda) by the agricultural sector. However, these Following the historically low inflation rate of
forecasts are subject to considerable uncertainties due 7.5 per cent in 2004, inflation in Africa increased to
to the unstable political situation in some countries. 8.8 per cent in 2005 and to 9.1 in 2006, largely due
The Comoros, Djibouti, Kenya, Madagascar and to the impact of increasing energy prices (although
Mauritius, which have recently been exhibiting slow partially offset by lower prices for imports of
growth, are expected to experience an acceleration of manufactures), and by unfavourable weather conditions,
32 GDP growth in 2007 and 2008, reaching about 5.2 per especially in Southern and West Africa which raised food
cent on average in this period. The growth prospects prices. This continent-wide average masks important
of Mauritius and Madagascar continue to be negatively differences between net oil-exporters and net oil-
affected by the increased competition from Chinese, importers. The latter experienced an upward surge of
Indian and Bangladeshi textile producers and the end inflation from 8.4 per cent in 2005 to 12 per cent in
of the Multi-Fibre Agreement. Eritrea is projected to 2006, which is expected to increase further to 12.7 per
improve its growth performance from 1.5 per cent in cent in 2007 and to 12.9 per cent in 2008.Although
2006 to 2 per cent and 3.3 per cent in 2007 and 2008, low worldwide inflation still benefited countries with
respectively, while in the Seychelles GDP growth is pegged exchange rates (such as CFA franc countries),
expected to be low as well. this was far less the case in 2005 and 2006 than in earlier
years as the inflation differential between some CFA
Southern Africa countries and the Euro region increased considerably.
However, there were only 4 countries (Angola, DRC,
Economic growth in Southern Africa was 5.4 per cent Guinea-Bissau, and Zimbabwe) that experienced
in 2006, about the same as in 2005, reflecting rapidly inflation rates at or above 20 per cent in 2005, and the
increasing output from new oil fields in Angola and the number remained the same in 2006 (DRC, Guinea-
coming on stream of a large number of mega-projects Bissau, São Tomé and Principe and Zimbabwe). The
in the mining sector in Mozambique. In South Africa forecasts assume that monetary authorities will not
growth – at 5 per cent, its highest since the end of need to tighten monetary policy significantly since oil
Apartheid – has been broad-based and mainly driven by prices are not expected to increase further.
domestic demand. In Malawi and Namibia growth
increased as well in 2006, but it slowed in Botswana. In North Africa
2007 and 2008, Botswana is expected to grow by slightly
more than 4 per cent per year, and Malawi and Namibia Inflation in North Africa fell back to 4.3 per cent
by about 5 per cent per year. In Zimbabwe, economic in 2006 following a temporary increase to 5.9 per cent

Overview
Table 2 - Weighted Mean CPI Inflation of African Regions (annual % change)

Region 1998-2004 2005 2006(e) 2007(p) 2008(p)
North Africa 4.4 5.9 4.3 4.6 4.3

West Africa 9.4 13.6 7.7 5.7 6.7
Central Africa 33.5 9.1 9.5 4.2 4.2
East Africa 5.5 8.2 9.9 5.7 5.5
Southern Africa 16.3 10.7 16.5 20.1 21.3
Total Africa 10.0 8.8 9.1 9.2 9.5
Memorandum Items:
Net Oil importers 8.8 8.4 12.0 12.7 13.0
SANE * Countries 6.3 7.1 4.8 5.3 5.3

Other Countries 14.5 10.9 14.2 13.8 14.2
Note: Owing to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/053866558216
in 2005 when inflationary pressures gained momentum Nigeria also declined from 17.9 per cent in 2005 to
in Algeria, Egypt, and Mauritania. Inflation slowed in 8.6 per cent in 2006. In Ghana inflation declined from
Egypt (from 11.4 per cent in 2005 to 4.1 per cent in 15.1 per cent in 2005 to 10.9 per cent in 2006 and in
2006) and in Mauritania (from 12.1 per cent in 2005 Sierra Leone inflation declined from 12 per cent in 2005
to 6.4 per cent in 2006). However, inflation increased to 9.5 per cent in 20006. In The Gambia inflation 33
in Tunisia (from 2 per cent in 2005 to 4.5 per cent in rates were low in 2005 to 2006, at 3.2 and 2 per cent,
2006) and to a lesser degree in Libya (from 6.9 per cent respectively. Projections for 2007 are for large decreases
in 2005 to 8 per cent in 2006). The average rate of in inflation rates, especially in Ghana and Guinea.
inflation in North Africa is projected to remain low in
both 2007 and 2008. Central Africa
West Africa The average rate of inflation remained high in

Central Africa at 9.5 per cent in 2006 largely due to
The average rate of inflation in West Africa declined continued high inflation in three countries: DRC
to 7.7 per cent in 2006 after experiencing inflation of (22 per cent), Rwanda (9.3 per cent) and São Tomé
13.6 per cent in 2005. Increases in the prices of both and Principe (19.8 per cent). In Burundi inflation
food, reflecting the impact of drought which provoked dropped from 13.5 per cent in 2005 to 5 per cent in
a regional food crisis, and fuel in many WAEMU 2006 as weather conditions normalised; and inflation
countries had a negative impact on inflation. rates remained stable in the remaining Central African
Nevertheless, the WAEMU countries, whose currencies countries (Cameroon, the Central African Republic,
are pegged to the Euro, still have a far lower average the Republic of Congo, Equatorial Guinea, and Gabon).
inflation rate than the member countries of the West The projections for 2007 and 2008 indicate that
African Monetary Zone (WAMZ)11, each of which inflation will decrease in Central Africa to 4.2 per cent,
has inflation rates of at least 5 per cent. In Guinea, much closer to the convergence target of 3 per cent,
inflation rates declined slightly from 31.1 per cent in largely due to a return to single-digit inflation rates in
2005 to 25 per cent in 2006. The rate of inflation in all countries except São Tomé and Principe.
11. Nigeria, Ghana, Sierra Leone, Guinea and Gambia.

Overview
East Africa policy, together with currency appreciation, declined

from 23 per cent in 2005 to an estimated 10 per cent
Except for Djibouti, Madagascar and Seychelles, in 2006) and accelerating inflation in Zimbabwe, the
inflation in each of the other countries of East Africa average inflation rate in Southern Africa accelerated to
increased from 2005 to 2006. As a result, the average 16.5 per cent in 2006 from 10.7 per cent in 2005.
rate of inflation in East Africa increased from 8.2 per Moreover the 2006 inflation rate exceeded 1 200 per
cent in 2005 to 9.9 per cent in 2006. In Madagascar, cent in Zimbabwe, clearly pointing to hyperinflation;
where inflation had increased to 18.3 per cent in 2005 and inflation remained above 10 per cent in Angola,
due to increases in both food and fuel prices, it decreased Botswana, Malawi and Mozambique, posing the risk
to 11.4 per cent in 2006, with the resumption of a of accelerating rates. In all countries where inflation has
normal rice harvest. In Uganda, inflation decreased been high (except Zimbabwe) it is expected to return
from 8 per cent in 2004/05 to 6.6 per cent in 2005/06 to single-digit levels in 2007, and to remain close to
with the ending of the drought. Mauritius, however, 5 per cent in Botswana, Lesotho, Namibia, South Africa
experienced an increase in inflation of 4 percentage and Swaziland.
points from 2005 to 2006. The outlook in East Africa
for 2007 and 2008 is for gradual reductions in inflation
rates in every country, except for Seychelles where Public Finances
inflation is expected to remain low at around 2 per cent.
Thus, the average rate of inflation in East Africa is In 2006 the overall fiscal balance (including grants)
expected gradually to fall to 5.7 per cent and 5.3 per of the group of net oil-exporting countries exhibited
cent in 2007 and 2008, respectively. a surplus equivalent to 8.2 per cent of GDP due mainly
34 to higher oil prices but also to increases in production.
Southern Africa The group of net oil-importing countries increased its
overall deficit slightly to the equivalent of 2.3 per cent
Southern Africa’s experience was mixed in 2006, of GDP in 2006 from 1.9 per cent in 2005. The low
with 6 countries experiencing higher inflation rates deficit of the net oil-importing countries reflects good
and 4 countries experiencing stable or lower inflation macroeconomic management and a higher level of
rates. Reflecting the relative sharp decreases of inflation grants, including a portion provided in the form of debt
rates in Angola (which thanks to a less expansive fiscal relief. On the one hand, projections for 2007 show a
Table 3 - Average Budget Balance to GDP Ratio

Region 1998-2004 2005 2006(e) 2007(p) 2008(p)
North Africa -1.4 3.2 5.0 5.3 4.9

West Africa -1.9 5.5 5.7 2.6 0.5
Central Africa -0.6 6.5 8.3 7.7 7.8
East Africa -3.5 -2.9 -4.7 -3.4 -3.4
Southern Africa -2.6 0.4 0.2 0.2 -0.3
Total Africa -2.0 2.4 3.2 2.7 2.0
Memorandum Items:
Net Oil exporters -0.8 7.0 8.2 7.3 6.1
Net Oil importers -3.1 -1.9 -2.3 -2.2 -2.4
SANE * Countries -1.8 2.5 2.9 1.4 0.6

Other Countries -2.3 2.3 3.5 4.1 3.6
Note: Due to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/202878646475

Overview
large but declining fiscal surplus for the group of net little change in Central Africa’s average fiscal surplus
oil-exporting countries (reaching 7.3 per cent of GDP) as a percentage of GDP.
and then declining somewhat in 2008. On the other
hand, the average deficit of the group of net oil- East Africa
importing countries is expected to remain at about the
same level as in 2006 in both 2007 and 2008. Fiscal balances worsened in East Africa in 2006,
reaching -4.7 per cent of GDP. The deterioration was
North Africa largely due to increased fiscal deficits in East Africa’s
three largest economies, Kenya, Ethiopia and Tanzania,
In North Africa the average fiscal balance exhibited accounting for about two-thirds of East Africa’s GDP.
a surplus equivalent to 5 per cent of GDP in 2006, as In Kenya, fiscal balances worsened from a small surplus
the largest oil-exporting countries in the region, Algeria of 0.1 per cent in 2005 to a deficit of 3.5 per cent in
and Libya, increased their surpluses to 13 per cent and 2006; in Ethiopia, the fiscal deficit increased from
42 per cent, respectively. Egypt, Mauritania, Morocco 4.7 per cent in 2004/05 to 7.4 per cent in 2005/06;
and Tunisia, on the other hand, experienced little while Tanzania’s deficit increased from 4.6 per cent in
change in their fiscal deficits in 2006. Sudan is estimated 2005 to 6 per cent in 2006. In 2007 fiscal deficits are
to have eliminated the small deficit exhibited in 2005. expected to improve somewhat and to remain at about
In 2007 and 2008, nearly every country is projected the same levels in 2008.
to improve its fiscal balance except for Algeria whose
fiscal surplus is expected to decrease somewhat. Southern Africa
West Africa The average fiscal balance of the countries in 35

Southern Africa exhibited little change in 2006 with
In 2006, fiscal balances deteriorated in 4 countries reduced deficits in Malawi, Namibia, and Zimbabwe
in West Africa. However, The Gambia, Guinea-Bissau, offsetting reduced surpluses in Angola and Lesotho. The
and Sierra Leone registered substantial reductions in projections for 2007 and 2008 show little change for
their deficits. In spite of some improvement, 6 countries the region as a whole. However, the fiscal deficits of
registered deficits of 4 per cent of GDP or more (Cape Mozambique and Swaziland are expected to worsen,
Verde, The Gambia, Ghana, Guinea-Bissau, Niger, while the fiscal surplus of Namibia is expected to give
Senegal). The projections for 2007 and 2008 are for way to a small deficit.
stable or improving overall fiscal balances in most
countries. In the case of Nigeria, however, the currently Balance of Payments
very high fiscal surplus is expected to decrease in both
2007 and 2008. In 2006, Africa’s average current account balance
exhibited a large surplus equivalent to 4.7 per cent of
Central Africa GDP. This overall figure, however, masks large
differences among countries. On the one hand, net
In 2006 the average fiscal position in Central Africa oil-exporting countries recorded a current account
improved substantially for the second year in a row as surplus of 12.8 per cent in 2006 (up from 11.7 per cent
all countries but one reduced their deficits or increased in 2005); on the other hand, the group of net oil-
or maintained large surpluses. Chad exhibited a small importing countries experienced a significant average
deterioration. The Republic of Congo, Equatorial current account deficit of 3.9 per cent of GDP in 2006
Guinea and Gabon also improved their fiscal balances compared with an average of 2 per cent in the period
significantly, and São Tomé and Principe continued to 1998-2004. These developments in current account
register a large surplus in 2006 due to revenue received balances were also far more homogenous within the
from oil exports. Projections for 2007 and 2008 show group of net oil-exporting countries than in the group

Overview
of net oil-importing countries. Among the latter, only exporting countries is projected to decrease slightly in
two countries improved their current account balances 2007 and further in 2008. Meanwhile the average
significantly (Botswana by 2.5 percentage points as a current account deficits of the net oil-importing
share of GDP and Mauritania by 8.7 percentage points). countries in 2007 and 2008 are expected to be about
The surplus in the current account balances of net oil- the same as in 2006.
Table 4 - Average Ratio of Current Account Balance to GDP

Region 1998-2004 2005 2006(e) 2007(p) 2008(p)
North Africa 2.9 10.5 12.5 11.9 10.3

West Africa -3.6 5.3 3.2 4.1 3.7
Central Africa -4.0 0.9 5.2 2.4 4.7
East Africa -3.3 -5.5 -6.1 -6.7 -7.1
Southern Africa -1.8 -2.4 -1.3 -1.4 -3.4
Total Africa -0.4 3.6 4.7 4.3 3.1
Memorandum Items:
Net Oil importers -2.0 -3.9 -3.9 -3.9 -4.3
SANE * Countries 0.7 4.9 5.0 4.1 2.9

Other Countries -1.8 2.1 4.4 4.6 3.4
Note: Due to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/431735236880
36
Africa’s overall balance of payments has benefited cent in 2005 to 12.5 per cent in 2006. In 2007 and
from increased foreign direct investment flows and 2008 the current account balances of Libya, Mauritania,
significantly reduced debt service payments in many Morocco and Sudan are expected to improve, while
heavily indebted poor countries (HIPCs) (see details those of Algeria, Egypt and Tunisia are expected to
in previous section). As of end-2006, 17 African worsen.
countries had reached their completion points and 9
additional African countries had reached the decision West Africa
point under the enhanced HIPC Initiative.
In 2006, 11 countries in West Africa registered
North Africa current account deficits ranging from about 4 to 14 per
cent of GDP. Smaller deficits were registered only in
Northern African countries continued to display Cote d’Ivoire and Mali. The average current account
large differences in their current account balances in balance in West Africa is dominated by Nigeria where
2006. While Algeria and Libya increased their trade the current account surplus was 8 per cent of GDP in
surpluses to about 24 per cent and 48 per cent of GDP, 2006 down from about 12 per cent in 2005. Little
respectively in 2006, Egypt and Morocco registered change is expected in 2007 or 2008 for most of the
small and declining surpluses, and Tunisia’s deficit deficit countries.
declined slightly. Mauritania made significant progress
in reducing its current account deficit from nearly Central Africa
50 per cent in 2005 to 37 per cent in 2006, while
Sudan reduced its current account deficit from 10.6 per In 2006, the average current account balance in
cent in 2005 to 5.9 per cent in 2006. Largely due to Central Africa registered a further improvement reaching
improvements in Algeria, Libya and Mauritania, North a surplus equivalent to 5.2 per cent of GDP, largely due
Africa’s current account surplus improved from 10.5 per to further large increases in the nominal value of oil

Overview
exports, especially in Chad, the Republic of Congo worsened slightly in 2006, but deficits fell in Zambia
and Gabon. Four countries (Burundi, the DRC, and Zimbabwe. South Africa’s current account balance
Rwanda and São Tomé and Principe) registered is projected to remain nearly stable in 2007 and 2008,
deteriorations in their current account balances, while while Angola’s very high current account surplus is
the surplus of Equatorial Guinea remained high. In 2007 projected to narrow slightly in 2007 and then to decrease
and 2008 the current account surpluses of most net oil- substantially in 2008 with a slowdown in the growth
exporting countries in Central Africa are expected to of oil exports.
decrease slightly.
East Africa The Millennium Development

Goals: Progress Report
In 2006 the average current account deficit in East
Africa widened to reach 6.1 per cent of GDP compared In making progress towards achieving the
with an average of 3.5 per cent for the period 1998- Millennium Development Goals (MDGs) Africa is
2004. This was largely due to the sizeable deterioration lagging behind other developing regions. On current
between 2005 and 2006 in the deficits of Ethiopia trends, the average number of targets likely to be met
(from 8.6 per cent of GDP in 2005 to 11.5 per cent per country is 2.4 out of 9 in Sub-Saharan Africa and
of GDP in 2006), Madagascar (from 10.1 per cent of 7.4 in Northern Africa. Nevertheless, those countries
GDP in 2005 to 16.8 per cent in 2006) and Mauritius that have adopted appropriate economic policies,
(from 5.2 per cent of GDP to 7.4 per cent). Current coherent poverty reduction strategies and have a record
account deficits also widened in Kenya and Uganda. of good governance have made considerable progress.
Tanzania reduced its current account deficit from Two main issues appear of particular importance to help 37
7.6 per cent of GDP in 2005 to 5.7 per cent in 2006. African countries improve their social indicators. The
Prospects for 2007 and 2008 are for some further first one relates to foreign aid. Arguing that large
worsening of current account deficits reaching 6.7 per amounts of well-targeted aid could produce some
cent and 7.1 per cent of GDP in 2007 and 2008, remarkable success stories the UNCTAD report
respectively. Economic Development in Africa 2006 calls for aid to
be dramatically increased, depoliticised and distributed
Southern Africa multilaterally instead of being concentrated on a
relatively small number of countries. The second issue
Among the countries in Southern Africa, Angola is the magnitude of the HIV/AIDS pandemic in Africa
experienced an increase in its current account surplus which affects all aspects of socio-economic life, leading
to 14.5 per cent of GDP in 2006, up from 12.8 per to a decline in economic growth, productivity and
cent in 2005, as a result of rising oil production and many social indicators. These effects flow from the
prices and of increased diamond production. Botswana erosion of the most productive cohort of the labour force
registered an increase in its current account surplus which reduces total labour input, depresses fiscal
from 8.1 per cent in 2005 to 8.8 per cent in 2006, and revenues and deepens the social crises of families.
Namibia also registered an increase in its current account
surplus from 5.7 per cent of GDP in 2005 to 10 per Based on World Bank and UNDP data, Table 5,
cent in 2006. The current account deficit of Main Progress Towards Achieving the MDGs, shows only
Mozambique was reduced substantially in 2006, thanks the countries that have already achieved or are on track
to buoyant aluminium exports. Nevertheless, a new wave to achieve the considered target. A country is “On
of mega-projects is expected to result in a strong increase track” when the actual growth rate of the indicator is
in capital goods imports and a renewed deterioration equal or higher than the required growth rate to achieve
of the current account balance in 2007 and 2008. the target. One should note that any situation can be
Current account deficits in Lesotho and South Africa reversed in the future; the trend from the baseline

Overview
scenario to 2015 is not necessary linear. In other words, 2015. Millions of children presently are not attending
even countries that have not achieved or are not on track school, especially in rural areas, more than half of them
to achieve the target this year, could reach it in the girls. All North African countries are on track to reach
near future. The satisfactory performance ratio is the the target with an average primary enrolment ratio of
percentage of countries that has achieved or is on track 94 per cent (64 per cent in Sub-Saharan Africa).
to achieve the target out of the 53 African countries. Countries that are “On track” have a ratio greater than
Blanks may also indicate missing data. 85 per cent and increasing.
Goal 1 – Reducing extreme poverty and Completion rates

hunger by half
Unfortunately, increased enrolment in primary
Monetary poverty school has not often translated into increased completion
rates. Children who have not completed a full course
This first target refers to halving, between 1990 and of primary education would not have become fully
2015, the proportion of people whose income is less than literate. The three countries (Egypt, Mauritius, and
one dollar a day. Although Northern Africa (Algeria, Seychelles) that have achieved the target had a
Egypt, Libya, Morocco and Tunisia) and some Sub- completion rate of at least 99 per cent in 2004.The
Saharan countries (Botswana, Burkina Faso, Cameroon, percentage of countries with a satisfactory performance
Ghana, Lesotho, Mauritius, South Africa and Uganda) ratio for completion rates is 22.6 per cent. However,
are making good progress, other countries are not yet considering both targets (primary enrolment and
making satisfactory progress. Overall, the poverty rate completion rates), only Algeria, Cape Verde, Egypt,
38 in Sub-Saharan Africa has declined marginally, from Mauritius, Seychelles, Tanzania and Tunisia (13.2 per
44.6 per cent in 1990 to 44 per cent in 2002. cent of African countries) are likely to ensure that all
children complete primary school by 2015.
Hunger
Goal 3 – Eliminating gender disparity
In Africa, the proportion of people who suffers
from hunger has declined from 31.4 per cent in 1990/92 One of the challenges for many African countries
to 29.1 per cent in 2001/03. Hunger is still widespread, is to ensure access to education for the girl-child.
particularly in rural Africa. However, over the same For the female primary school enrolment ratio as a
period 20 countries managed to reduce the proportion percentage of the male ratio, the percentage of
of people suffering from hunger by at least 22 per cent, countries with satisfactory performance (62.3 per
including three countries that have achieved the target cent) is the highest of the nine targets. It was calculated
of a 50 per cent reduction. The prevalence of the by considering all the countries that had a ratio of
undernourished as a percentage of the population has greater than 85 per cent that was increasing. However,
decreased from 53 per cent to 26 per cent in Djibouti, in secondary education, only 37.7 per cent of
from 10 per cent to 5 per cent in Gabon and from 37 per countries are on track. Only six countries (Botswana,
cent to 12 per cent in Ghana. Lesotho, Libya, Mauritius, Namibia, Seychelles) have
achieved gender equality in both primary and
Goal 2 – Achieving universal primary secondary levels of education as indicated in the
education United Nations Millennium Declaration “preferably
by 2005”. Thirteen other countries seem able to
Primary school enrolment reach both targets by 2015 (Algeria, Cape Verde,
Egypt, Ghana, Kenya, Madagascar, Rwanda, São
Only 24.5 per cent of African countries are likely Tomé and Principe, South Africa, Sudan, Swaziland,
to achieve universal primary education by Tunisia and Zimbabwe).

Overview
Box 6 - Women in Sub-Saharan Africa
According to recent estimates, women provide approximately 70 per cent of agricultural labour and produce about 90 per cent of
all food. Women’s economic activity rate, which measures the percentage of people who furnish the supply of labour for the production
of economic goods, ranks highest compared to other regions of the world (including the OECD countries) with a value of 61.9. However,
women are predominantly employed in the informal sector and/or they occupy low-skill jobs. This can be illustrated by considering the
percentage of women in wage employment in the non-agricultural sector, which scores lowest among all regions of the world with a value
of only 8.5 per cent.
The weak status of women in the formal economy of Sub-Saharan Africa has many reasons. Insufficient access to the key resources
of education and health are two important contributing factors. As is illustrated by the Gender, Institutions and Development Data Base
(GID-DB) of the OECD Development Centre, primary education of females is still at a strikingly low rate of 67 per cent despite international
endeavours such as the second Millennium Development Goal to achieve universal primary education by the year 2015. Unsurprisingly,
illiteracy remains a major challenge. Among those above the age of 15, only 51 per cent of women are able to read and write compared
to 67.1 per cent of men. Improvements in maternal mortality also fall far short of international objectives. The African value of 866
deaths per 100 000 live births – partly due to dismal medical services which only guarantee 50.9 per cent of all births being attended by
skilled health personnel – is alarming and far worse than in any other region of the world.
Apart from these relatively obvious factors, the GID-DB also helps to identify and understand more hidden reasons that obstruct
the socio-economic development of women. The comprehensive data base compiles for the first time in a coherent and systematic fashion
information on inequalities that are based on social norms and traditions. The prevailing family code in many African countries, for
example, discriminates against women in preventing daughters from having an equal share of inheritance or parental authority over their
children after a marriage is dissolved. Similar to South Asian countries, girls often find themselves in arranged or even forced marriages,
into which they enter at very young ages. Compared to an OECD average of 27.4 years, girls in Sub-Saharan Africa marry at only 21.3
years. What is more, 28 per cent of all girls before the age of 20 have been married at least once in their life.
39
Polygamy is pervasive in many Sub-Saharan African countries and property rights over land are not granted equally to men and
women. Although women may have the right to obtain a bank loan on paper, customs still prevent females from having equal access to
credit in many rural areas in Africa. Other traditions such as female genital mutilation – which in some countries is reported to affect
more than 95 per cent of all women (e.g. in Guinea, Mali, Somalia and Eritrea) – are not only a violation against women’s basic human
rights but also impairs their health status and consequent chances in the labour market. Highlighting the important impact of social
norms and traditions may help to design better policies that can improve the socio-economic status of women in the long-run.
See www.oecd.org/dev/institutions/GIDdatabase for further information.

Note: Sub-Saharan Africa as defined by the World Bank (including Mauritania and Sudan).
Goal 3 also focuses on women’s empowerment in Goal 4 – Reducing child mortality

the areas of employment and political decision making.
On the political front, the number of women in In Africa, progress towards reducing under-five
parliaments has constantly increased over the years. mortality rates has been painfully slow. With only
However, they are still under-represented in politics and 20 per cent of the world’s children under age five, the
at the highest level of economic institutions and sectors. region accounted for half of total child deaths
Over the period 1990-2006, the share of women in worldwide. The percentage of countries exhibiting
parliament has increased from 7 per cent to 16 per satisfactory performance is particularly low (15.1 per
cent in Sub-Saharan Africa and from 3 per cent to cent) and even lower (5.7 per cent) in sub-Saharan
7 per cent in Northern Africa. Rwanda is the only Africa. Only three countries in sub-Saharan Africa
African country which has come close to parity. (Cape Verde, Comoros, and Eritrea) have managed to

Overview
reduce under-five mortality rate by at least 37 per cent 12 million children were AIDS orphans and 59 per cent
between 1990 and 2004. Due to the HIV/AIDS of HIV-positive adults were women. The apparent
pandemic or conflicts, several other countries have stabilisation of the HIV prevalence rate in Sub-Saharan
even slipped back over the period 1990-2004 (Botswana, Africa, at about 6 per cent, reflects the fact that as new
Central African Republic, Côte d’Ivoire, Equatorial people acquire the virus, nearly the same number die
Guinea, Kenya, Rwanda, South Africa, Swaziland and from AIDS. Concerning tuberculosis, Table 5 indicates
Zimbabwe). The majority of children’s deaths can be that 10 countries (among which six Sub-Saharan
attributed to preventable diseases such as polio, smallpox countries) are on track to halve the spread of the disease
or parasites; this is due, at least in part, to that fact that by 2015. However, new tuberculosis cases are on the
the percentage of children receiving vaccination was only rise, not only because they are associated with HIV.
65 per cent in sub-Saharan Africa in 2004. Excluding people who are HIV-positive, the number
of new tuberculosis cases per 100 000 has increased from
Goal 5 – Improving maternal health 148 to 281 in Sub-Saharan Africa between 1990 and
2004. Concerning malaria, the fight against the disease
Only 20.8 per cent of countries are on track to has taken off with the increased availability of insecticide-
meet the target of reducing the maternal mortality ratio treated mosquito nets and effective anti-malaria drugs.
by three-quarters by 2015 and no country has yet However, disparities between rural and urban areas in
achieved the target. In 2000, more than 1 500 women sub-Saharan Africa remain large.
per 100 000 live births died during pregnancy or
delivery in Angola, Malawi, Niger, Sierra Leone and Goal 7 – Ensuring environmental
Tanzania due to limited access to health care. The sustainability
40 provision of skilled care at childbirth is one of the key
elements necessary to reduce maternal mortality. Goal 7 embodies reversing the loss of
However, in sub-Saharan Africa the proportion of environmental resources, along with provision of safe
deliveries attended by skilled health care personnel has water, adequate sanitation and decent housing. Poverty
increased by only 4 percentage points, from 42 per across Africa has led to continued loss of forests and
cent to 46 per cent, between 1990 and 2004; and other precious environmental resources. The
inequality between urban and rural care at delivery proportion of land area covered by forests has decreased
is particularly significant. In contrast, the proportion from 29 per cent in 1990 to 27 per cent in 2005 in
has increased from 40 per cent to 71 per cent in Sub-Saharan Africa. The conversion of forests to
Northern Africa. agricultural land and the use of fuel wood for heating,
cooking and lighting have caused extensive
Goal 6 – Combating HIV/AIDS, malaria and deforestation. This in turn has increased drought and
other disease flooding. Sub-Saharan Africa has made little progress
towards achieving the target of improving the lives of
The goal of halting and reversing the spread of at least 100 million slum dwellers. During the period
HIV/AIDS, malaria, tuberculosis and other major 1990-2001, the number of people living in slums
diseases by 2015 appears daunting in Africa. Concerning increased at an annual average rate of 4.6 per cent.
HIV/AIDS, although some prevention efforts are These families face overcrowding, inadequate housing
proving successful in some places (urban areas of Burkina and a lack of water and sanitation. However, there has
Faso, Kenya, and Zimbabwe), deaths and new infections been progress towards meeting the target of halving
continue to increase. The world-wide epidemic remains by 2015 the proportion of people without sustainable
centred in Sub-Saharan Africa. In 2005, the region access to safe drinking water and basic sanitation.
accounted for 64 per cent of HIV-positive adults Five countries have already achieved the target for
worldwide, and 90 per cent of children under 15 living improving access to safe drinking water (Egypt,
with the virus. In sub-Saharan Africa, more than Malawi, Mauritius, Namibia and Tunisia), and

Overview
15 countries are “On track”, bringing to 37.7 Governance and Political Issues
the percentage of countries with a satisfactory
performance. Concerning sanitation, progress has Since the early 1990s, important progress has been
been much slower. In sub-Saharan Africa the recorded in strengthening democracy, reinforcing the
proportion of population using improved sanitation judiciary and media, and lessening armed conflicts.
increased on average, from 32 per cent to 37 per cent The promotion of good governance has also become
between 1990 and 2004, compared to the target for a mainstay in the policy dialogue between African
2015 of 66 per cent. Rapidly growing populations and governments and international donors. Nonetheless,
wide disparities between rural and urban areas pose few African political regimes have met the minimum
daunting challenges to fully achieving the drinking requirements of representative democracy and the
water and sanitation targets. process of democratisation often suffers from
breakdowns and setbacks to varying degrees of severity.
Goal 8 – Developing a global partnership for In many countries the press is still controlled; and
development corruption is often perceived as endemic and regarded
as one of the major hindrances to economic and human
This broad goal encompasses partnerships between development. Moreover, while civil and international
developed and developing countries through aid, debt wars are less frequent and less intense than in the past,
relief, trade, procurement of drugs, creation of work, Africa remains the world’s most unstable region.
exchange of new technologies, etc. Official
development assistance (ODA) to Africa has started Conflicts and Political Troubles
to increase since 2001. It recovered from a low of
$15.3 billion in 2000 to $26.5 billion in 2004. In 2005, The AEO political troubles indicator (reported in 41
debt relief accounted for three quarters of the aid the Statistical Annex to this volume) shows a
increase following the G8 Summit in July 2005 continuation in 2006 of the long-term decline in political
regarding debt cancellation. Other forms of aid rose instability that has been observed since 2002. In Algeria
by 9 per cent in 2005 and donors have pledged to political troubles have dramatically dropped since 2001,
double it by 2010. Unfortunately, debt relief as well and in Ethiopia and Kenya there has been an important
as emergency and disaster relief will not necessarily and recent decrease in ethnic clashes. In Uganda, the
release more money for poverty reduction and long- government and the Lord’s Resistance Army (LRA)
term development. Access to essential drugs has rebels signed an historical truce in August 2006, which
significantly expanded in Sub-Saharan Africa, especially marked a cessation of hostilities and the beginning of
those for treating HIV following availability of generic peace talks between the two sides, although the latter
drugs. The number of people on antiretroviral therapy soon came to a halt. In a positive development for Côte
has increased from 100 000 in 2003 to 810 000 in d’Ivoire, President Gbagbo and the chief of the rebels,
2005. Job prospects for youth have not kept pace with Guillaume Soro, signed an agreement on 4 March 2007.
population growth both in sub-Saharan Africa and in This agreement, which came after months of negotiations
Northern Africa: the rate of youth unemployment and is known under the name of “Accord Politique de
has increased from 18 per cent in 1995 to 18.3 per Ouagadougou”, possibly constitutes the first concrete
cent in 2005 in the former and from 33.9 per cent to step towards the end of the crises that have beset the
34.5 per cent in the latter. As regards international country during the past four years.
trade, producer subsidies in developed countries, and
tariffs and quotas on imports, especially on strategically More generally, the decrease of political instability
important categories, such as clothing and farm in the continent is reflected, among other things, by
products, still restrict access for African products. The the number of state-based armed conflict in sub-Saharan
challenge of the ongoing Doha trade negotiations is Africa falling from 13 in 2002 to 5 in 2005, while
to further reduce such trade barriers. reported deaths decreased from 4741 to 1851 over the

42
Overview
Table 5 - Progress Towards Achieving the Millennium Development Goals

Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Goal 6 Goal 7
Eradicate Combating Ensure
Improve
extreme Achieve universal primary Promote gender equality and Reduce child HIV/AIDS, environmental
maternal
poverty and education empower women mortality malaria and sustainability
health
hunger other disease Target

Halve the % of Reduce Halt and Halve the % of
Reduce by 2/3 Number of
people Ensure that all children can Eliminate Gender disparity in all maternal reverse spread people without
Targets under 5 targets to be
suffering from complete primary school levels of education mortality of access to safe
mortality rates achieved
hunger by 3/4 Tuberculosis water
Female Under five Maternal Tuberculosis Access to

Indicators Under- Net primary Children reach Female primary
secondary mortality mortality ratio incidence improved
nourished enrolment ratio grade 5 ratio as % of
ratio as % of rates (per 100 000 (per 100 000 safe water
HDI Rank people (%) (%) (% of grade 1) male ratio
male ratio (per 1000 lives) live births) people) (%)
102 Algeria On track On track On track Achieved On track On track 6 of 9

161 Angola On track 1 of 9
163 Benin On track 1 of 9
131 Botswana On track Achieved Achieved On track On track 5 of 9
174 Burkina Faso On track 1 of 9
169 Burundi On track On track 2 of 9
144 Cameroon On track On track 2 of 9
106 Cape Verde On track On track On track Achieved On track 5 of 9
172 Central African Republic On track 1 of 9
171 Chad On track On track 2 of 9
132 Comoros On track On track On track 3 of 9
140 Congo On track On track On track 3 of 9
167 Congo, Dem. Rep. 0 of 9
164 Côte d’Ivoire On track On track On track 3 of 9
148 Djibouti Achieved On track 2 of 9
111 Egypt On track On track Achieved On track On track On track On track On track Achieved 9 of 9
120 Equatorial Guinea On track On track 2 of 9
157 Eritrea On track On track On track 3 of 9
170 Ethiopia On track On track 2 of 9
124 Gabon Achieved Achieved 2 of 9
155 Gambia Achieved On track 2 of 9
136 Ghana Achieved On track On track On track On track 5 of 9
160 Guinea On track 1 of 9
173 Guinea Bissau 0 of 9
© AfDB/OECD 2007
152 Kenya On track On track On track 3 of 9
149 Lesotho On track On track Achieved Achieved 4 of 9
999 Liberia 0 of 9
64 Libya On track Achieved Achieved On track On track 5 of 9
143 Madagascar On track On track On track 3 of 9
166 Malawi On track On track Achieved Achieved 4 of 9
175 Mali On track 1 of 9
153 Mauritania On track On track 2 of 9
63 Mauritius On track Achieved Achieved Achieved On track Achieved 6 of 9
123 Morocco On track On track On track On track 4 of 9
168 Mozambique On track 1 of 9
125 Namibia On track On track Achieved Achieved Achieved 5 of 9
© AfDB/OECD 2007
177 Niger 0 of 9
159 Nigeria On track On track 2 of 9
158 Rwanda Achieved On track On track On track 4 of 9
127 São Tomé and Principe On track On track On track Achieved On track 5 of 9
156 Senegal On track On track 2 of 9
47 Seychelles On track On track Achieved Achieved Achieved On track 6 of 9
176 Sierra Leone Achieved 1 of 9
999 Somalia 0 of 9
121 South Africa On track Achieved On track On track 4 of 9
141 Sudan On track On track 2 of 9
146 Swaziland On track Achieved 2 of 9
162 Tanzania On track On track On track On track 4 of 9
147 Togo On track 1 of 9
87 Tunisia On track On track On track Achieved On track On track Achieved 7 of 9
145 Uganda Achieved On track 2 of 9
165 Zambia On track On track 2 of 9
151 Zimbabwe On track On track 2 of 9
Achieved 3 0 3 11 13 0 0 0 5
On track 17 13 9 22 7 8 11 10 15
Satisfactory 37.7% 24.5% 22.6% 62.3% 37.7% 15.1% 20.8% 18.9% 37.7%
Performance Ratio
Sources: Author's calculations based on data from UNDP (2006) Human Development Report, Oxford University Press, New York and World Bank (on line) World Development Indicators, Washington, D.C.

http://dx.doi.org/10.1787/811258553025
Overview
43
Overview
same period. There has also been a large decline in the to the end of the civil war. In February 2007, the UN
number of countries in the region experiencing state- Security Council renewed the mandate of the MONUC,
based conflict over this period from 11 to 412. United Nations Mission in the Democratic Republic
of the Congo, (in place since November 1999) which
Despite this generally positive evolution, some provides for assistance to prevent and manage conflict,
countries experienced increasing troubles in 2006. In support state institutions, monitor human rights abuses
Chad, the tensions generated by the neighbouring and enforce the arms embargo. MONUC is the world’s
Darfour crises and by internal opposition to the regime largest and most expensive peacekeeping operation.
have erupted in a coup attempt and an outbreak of civil
strife. In Nigeria, several rebel attacks against oil platforms Armed conflicts remain the strongest threat to
and kidnappings of firms’ foreign staff added to political democracy and human rights, and violent conflicts in
tensions, which were already increasing with the approach relation to the number of states remain higher in sub-
of general elections. Finally, DRC is still experiencing Saharan Africa than anywhere else13. In 2006, as in the
a difficult political transition, which could hopefully lead previous year, 74 political conflicts14 were recorded with
Figure 8 - Political Troubles in Africa, 1996-2006

Political troubles Trend
600
44 500
400
300
200
100
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Note: the indicator has been calculated on the basis of 25 countries: Algeria, Botswana, Burkina Faso, Cameroon, Chad, Côte
d’Ivoire, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Mali, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal,
South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
Source: Based on Appendix Table 21.
http://dx.doi.org/10.1787/217725660146
12. According to Human Security Centre (2006), Human Security Brief 2006. Note that some countries have more than one conflict.
13. Heidelberg Institute for International Conflict Research (2006), Conflict Barometer 2006.
14. According to Conflict Barometer a conflict is “the clashing of interests (positional differences) over national values of some duration
and magnitude between at least two parties (organised groups, states, groups of states, organisations) that are determined to pursue
their interests and win their cases. A conflict is considered to be a severe crisis if violent force is repeatedly used in an organised way.
A war is a type of violent conflict in which violent force is used with a certain continuity in an organised and systematic way. The conflict
parties exercise extensive measures, depending on the situation. The extent of destruction is massive and of long duration”.

Overview
three conflicts ending in 2005, and three new ones with the Western African Standby Brigade, building
emerging in 2006. No conflict ended in 2006. Of these on the peacekeeping experience gained by the
74 conflicts, two were wars (Somalia and Sudan) and ECOMOG force in Sierra Leone, Liberia, and Côte
13 were severe crises. Thus, 15 were characterised by a d’Ivoire. The European Union has extended $330 million
high level of violence, compared to nine in 2005. This in aid to the force, which is also benefiting from the
increase was largely due to the re-emergence of regional Global Peace Operations Initiative (GPOI), a
conflicts. Besides the Darfour crises, the Horn of Africa multilateral, five-year programme led by the United
showed ominous signs of breakdown, with Somalia States to train and equip 75 000 peacekeeping troops,
experiencing all-out civil war, Eritrea arming the Union a majority of them African, by 2010.
of Islamic Courts, and Ethiopian troops entering Somalia
to restore the transitional federal government. The Political Stance
In 2002, the Durban Summit of the African Union In 2006, there was no improvement in the indicator
endorsed the establishment of the African Standby of political hardening (as defined in the statistical
Force (ASF) as one of the cornerstones of a new African annexes to this volume), as the sharp deterioration in
security edifice. Phase two of ASF force development the political climate in a few countries offset the smaller
has begun and will run until June 2010. During this improvements in many others. A hardening of the
time, AU protocols state that the force will develop the political stance has been provoked by the outburst of
capacity to manage complex peacekeeping operations, new conflicts (such as in Chad), by the slow progress
while the five regions will continue to develop the in resolving ongoing crisis (such as Côte d’Ivoire),
capacity of their own forces. Progress is more advanced sometimes by the holding of elections (such as in
45
Figure 9 - Political Hardening in Africa, 1996-2006

Hardening of the regime indicator Trend
250
200
150
100
50
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Note: the indicator has been calculated on the basis of 25 countries: Algeria, Botswana, Burkina Faso, Cameroon, Chad, Côte
d’Ivoire, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Mali, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal,
South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
Source: Based on Appendix Table 23.
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Overview
RDC). In Guinea, a series of strikes that started towards by the authorities caused the deaths of many civilians
the end of 2006 provoked a harsh response from the who were demonstrating for the resignation of the
government in early 2007. The repressive means used president, and raised concerns that the violence might
Table 6 - Political Governance Indexes for African Countries, 2005 and 2006
Country Political Rights and Change from Press Freedom Change from
Civil Liberties 2006 (ranking) 2005 (value) 2006 (ranking) 2005 (value)
Algeria 148= 0 126 -0.33

Angola 148= 0 91 3.5
Benin 64= 0 23 0
Botswana 64= 0 53 -1
Burkina Faso 118= -0.5 70 -3
Burundi 111= -1 125 16.83
Cameroon 169= 0 112 7.75
Central A Rep. 130= -1 62 -5.25
Chad 148= 0 124 5.5
Congo Rep. of 140= 0.5 73 0
Congo, Dem. Rep. 169= 0 142 -6.33
Côte d’Ivoire 169= 0 n/a -27.25
Djibouti 140= 0 121 -4
Egypt 148= 0 133 -5.75
Equatorial Guinea 176= 0 n/a 4
Eritrea 176= 0 166 -2.25
Ethiopia 140= 0 160 33
Gabon 140= 0.5 114 2.5
Gambia 130= 0.5 149 13
46 Ghana 52= -0.5 34 -6.5
Guinea 148= 0 109 -1.5
Guinea-Bissau 111= -0.5 n/a -2.5
Kenya 90= 0 118 0.25
Lesotho 80= 0 n/a -3.5
Liberia 111= -0.5 84 -1.5
Libya 185= 0 152 -26.25
Madagascar 90= 0 66 -9.5
Malawi 118= 0 n/a 2.75
Mali 64= 0 n/a 1
Mauritania 140= -0.5 77 -22.5
Mauritius 1= 0 n/a 0.5
Morocco 130= 0 97 -11.34
Mozambique 111= 0 n/a 1
Namibia 64= -0.5 26 0.5
Niger 90= 0 95 11.5
Nigeria 118= 0 120 -6.52
Rwanda 148= 0 n/a 3
São Tomé and Principe 64= 0
Senegal 80= 0 n/a -1.5
Seychelles 90= 0 n/a 7.5
Sierra Leone 111= 0 n/a -13.5
Somalia 176= 0 n/a -7.75
South Africa 52= 0 44 4.75
Sudan 185= 0 139 4.13
Swaziland 169= 0 127 5.5
Tanzania 111= 0 88 2.32
Togo 148= 0 n/a -8.75
Tunisia 148= 0 148 -3.75
Uganda 130= 0 116 10.58
Zambia 118= 0 n/a -0.5
Zimbabwe 176= 0 140 -14.25
Source: Freedom House and Reporters sans frontières.

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Overview
escalate. Developments in Nigeria have, however, been including in Uganda, where no such polls had taken place
more positive. Some hardening of the political climate since 1986 and where the incumbent president was re-
with the approach of presidential elections in 2007 elected with 59.28 per cent of votes. Finally, in Côte
notwithstanding, the Senate refusal to modify the d’Ivoire, where the situation remains extremely volatile,
constitution and, thus, preventing the incumbent the conduct of new presidential elections – already
president from being re-elected for the third time, is a postponed from December 2005 to October 2006 – is
sign of consolidation of parliamentary democracy. now planned for October 2007.
The political freedom index from Freedom House Africans rate the quality of their elections relatively
is based on measures of several components of political highly. These major achievements notwithstanding,
freedom such as free and fair elections; honest tabulation however, the ability of elections to provide voters with
of ballots; the extent to which citizens are free to either a real voice in government, or an effective means
organise in different political parties or other political for enforcing accountability on their representatives,
groupings of their choice; whether there is a significant remains much less certain. In addition, while the state
vote for the opposition and a realistic possibility to enjoys a considerable degree of legitimacy, and there
gain power through elections; self-determination, and is solid support for protection of individual freedoms
freedom from any kind of domination; reasonable self- and enforcement of the rule of law, there is also a
determination for cultural, ethnic, religious and other sizeable and durable minority that appears willing to
minority groups; and the extent to which political compromise on these safeguards, either to protect the
power is decentralised. state, or to “get things done”. It appears that the public
recognises the need for citizens to be more critical of
Progress towards Democracy the state in principle, but does not always find itself 47
able to fulfil this duty in practice15.
The transition to competitive, multiparty politics
continued in African countries during 2006. Almost Corruption
59 million Africans participated in the presidential
elections held in ten African countries in 2006 (67.3 per Much has been said about corruption in Africa.
cent turnout rate). The incumbent head of state was re- Transparency International data indicate that out of 42
elected in nine cases, with margins ranging from 67 per African countries for which the 2006 CPI perception
cent in the Gambia to 42 per cent in Zambia. In Senegal, index is available, only Botswana is listed in the world’s
in the aftermath of a tense electoral campaign, Abdoulaye top quartile, 11 countries are in the second, 14 are in
Wade was re-elected in February 2007. The most the third, and 15 in the lowest. Making comparisons
convincing victory was in Benin, where a new president from one year to another is problematic. Nonetheless,
was elected with a 73 per cent second-round majority. to the extent that changes can be traced back to
An historical achievement was the first free and fair individual sources, Seychelles and Tunisia are noteworthy
elections held in the DRC in 40 years in July 2006. examples of deteriorations between 2005 and 2006,
Despite accusations by Vice President Jean-Pierre Bemba, while improvements were recorded for Algeria and
one of the candidates, that President Joseph Kabila had Mauritius. More broadly, Africans themselves say they
tampered with the first-round results, and the eruption perceive less official corruption today than six years ago.
of violence in Kinshasa, the process ultimately succeeded. This result runs counter to the popular wisdom that
Moreover, seven countries organised multiparty elections, corruption in Africa is entrenched and worsening16.
15. Carolyn Logan, Tetsuya Fujiwara and Virginia Parish (2006), “Citizens And The State In Africa: New Results From Afrobarometer Round
3”, Afrobarometer Network, Working Paper No. 61.
16. Bratton, Michael and Wonbin Cho (2006), “Where is Africa Going? Views From Below. A Compendium of Trends in Public Opinion in
12 African Countries 1999-2006”, Afrobarometer Network, Working Paper, No. 60.

Overview
Table 7 - Elections in Africa, 2006-07
2006 2007
Algeria Parliamentary (May)

Angola Presidential and parliamentary,
(to be confirmed)
Benin Presidential (5 and 19 March) Parliamentary (25 March)
Botswana
Burkina Faso Parliamentary (May)
Burundi
Cameroon Parliamentary (June)
Cape Verde Parliamentary (22 January) and
presidential (12 February)
Central African Republic
Chad Presidential (3 May) Parliamentary (April)
Congo Parliamentary (May)
Congo, Dem. Rep. Presidential (30 July and 29 October 29)
and parliamentary (30 July)
Côte d’Ivoire
Djibouti
Egypt
Ethiopia Presidential (November)
Gabon Parliamentary (17 December)
Gambia Presidential (22 September) Parliamentary (25 January)
Ghana
Guinea
Guinea-Bissau
48 Kenya Presidential (December)
Lesotho Parliamentary (17 February)
Liberia
Madagascar Presidential (3 December) Parliamentary
Mali Presidential (29 April and 13 May)
and parliamentary (1 and 29 July)
Mauritania Referendum (25 June) and parliamentary Parliamentary (21 January)
(19 November and 3 December) and presidential (11 March)
Mauritius
Morocco Parliamentary (September)
Mozambique
Nigeria Presidential and parliamentary (21 April)
Rwanda
São Tomé and Principe Parliamentary (26 March)
and presidential (30 July)
Senegal Presidential and parliamentary
(25 February)
Seychelles Presidential (July 28) Parliamentary (November)
Sierra Leone Presidential and parliamentary (28 July)
South Africa
Tanzania
Togo Parliamentary (24 June)
Tunisia
Uganda Presidential and parliamentary (23 February)
Zambia Presidential and parliamentary (28 September)
Zimbabwe
Source: www.electionguide.org and http://africanelections.tripod.com/
http://dx.doi.org/10.1787/131105245444
The African Peer Review Mechanism (APRM), their leaders to show their commitment to improving
launched in July 2002 in the framework of the NEPAD, economic and political governance. In September 2006,
constitutes an opportunity for African countries and a declaration to accede was received from São Tomé and

Overview
Principe, bringing to 26 the number of participating achieved stage five, with the country report and
members. Although half of them (13) have already programme of action having being published.
launched the process, the country review reports have
been finalised for four of them (Ghana, Kenya, Rwanda In 2006, unfortunately, no new country deposited
and South Africa), and the draft report on Mauritius its ratification of the African Union Convention on
has been completed. To date, Ghana and Kenya have Preventing and Combating Corruption, adopted in
Table 8 - Corruption Perception Indexes (CPI) for African Countries,

2005 and 2006
Country Global Rank 2006 CPI 2006 Global Rank 2005 CPI 2005
Botswana 37 5.6 32 5.9

Mauritius 42 5.1 51 4.2
South Africa 51 4.6 46 4.5
Tunisia 51 4.6 43 4.9
Namibia 55 4.1 47 4.3
Seychelles 63 3.6 55 4.0
Egypt 70 3.3 70 3.4
Ghana 70 3.3 65 3.5
Senegal 70 3.3 78 3.2
Burkina Faso 79 3.2 70 3.2
Lesotho 79 3.2 70 3.4
Morocco 79 3.2 78 3.2
Algeria 84 3.1 97 2.8
Madagascar 84 3.1 97 2.8
Mauritania 84 3.1 - - 49
Gabon 90 3.0 88 2.9
Eritrea 93 2.9 107 2.6
Tanzania 93 2.9 88 2.9
Mali 99 2.8 88 2.9
Mozambique 99 2.8 97 2.8
Libya 105 2.7 117 2.5
Malawi 105 2.7 97 2.8
Uganda 105 2.7 117 2.5
Zambia 111 2.6 107 2.6
Benin 121 2.5 88 2.9
Gambia 121 2.5 103 2.7
Rwanda 121 2.5 83 3.1
Swaziland 121 2.5 - -
Burundi 130 2.4 130 2.3
Central African Republic 130 2.4 - -
Ethiopia 130 2.4 137 2.2
Togo 130 2.4 - -
Zimbabwe 130 2.4 107 2.6
Cameroon 138 2.3 137 2.2
Niger 138 2.3 126 2.4
Angola 142 2.2 151 2.0
Congo, Rep 142 2.2 130 2.3
Kenya 142 2.2 144 2.1
Nigeria 142 2.2 152 1.9
Sierra Leone 142 2.2 126 2.4
Côte d’Ivoire 151 2.1 152 1.9
Equatorial Guinea 151 2.1 152 1.9
Chad 156 2.0 158 1.7
Congo, Dem. Rep. 156 2.0 144 2.1
Sudan 156 2.0 144 2.1
Guinea 160 1.9 - -
Source: Transparency International.
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Overview
Table 9 - African Index of Economic Freedom for 2000-07

World 2007 2006 2005 2004 2003 2002 2001
rank Country Score Score Score Score Score Score Score
34 Mauritius 69.0 66.5 64.3 64.3 64.5 65.4 66.7

38 Botswana 68.4 70.3 69.8 69.5 68.5 60.9 62.7
52 South Africa 64.1 66.3 61.5 65.0 66.0 62.8 60.6
55 Namibia 63.8 60.9 60.0 61.6 66.5 64.2 63.7
59 Uganda 63.4 64.9 61.4 61.6 57.9 58.8 61.2
64 Swaziland 61.6 62.2 58.0 56.8 60.1 60.2 63.7
65 Madagascar 61.4 63.0 61.6 59.1 62.9 56.5 54.0
69 Tunisia 61.0 59.2 56.7 59.4 59.2 60.3 60.8
82 Kenya 59.4 60.0 56.0 55.4 55.8 55.3 55.8
86 Senegal 58.8 57.4 56.6 57.3 56.1 56.5 58.4
88 Cape Verde 58.4 60.3 59.7 59.5 53.5 56.8 56.2
91 Ghana 58.1 56.7 55.1 56.5 56.0 56.6 61.7
92 Zambia 57.9 59.1 54.5 51.9 53.5 57.7 57.4
93 Gambia, The 57.6 57.9 56.3 53.7 54.8 56.3 54.1
96 Morocco 57.4 53.0 54.0 58.1 59.4 59.3 63.7
101 Mozambique 56.6 55.1 54.6 55.5 58.1 56.8 55.7
103 Tanzania 56.4 59.3 54.0 57.3 54.1 57.7 55.7
105 Côte d’Ivoire 55.5 56.8 54.9 56.2 55.2 55.9 53.8
106 Malawi 55.5 57.9 53.4 52.0 51.3 54.1 52.3
111 Guinea 55.1 53.7 55.8 54.0 54.7 52.9 56.2
113 Burkina Faso 55.0 55.7 54.6 55.8 55.4 56.3 53.9
50 114 Benin 54.8 54.3 49.7 52.5 52.3 54.4 58.3
116 Ethiopia 54.4 53.4 50.1 52.3 46.6 47.1 48.6
117 Cameroon 54.4 54.2 49.7 50.1 50.1 50.8 50.8
118 Lesotho 54.1 57.0 52.9 48.6 50.7 49.1 52.3
123 Mali 53.7 54.1 56.6 55.7 57.8 60.3 60.6
124 Niger 53.5 53.6 51.2 51.4 51.1 45.3 47.2
126 Mauritania 53.2 55.6 57.0 59.0 56.0 52.3 48.9
127 Egypt 53.2 52.2 52.7 53.5 51.7 50.5 48.7
128 Equatorial Guinea 53.2 50.2 50.6 49.2 49.0 42.2 44.7
129 Gabon 53.0 54.9 52.3 54.3 56.5 55.9 54.7
130 Djibouti 52.6 55.0 56.4 55.3 54.1 56.3 57.0
131 Nigeria 52.6 48.8 45.8 47.3 48.5 49.8 52.3
134 Algeria 52.2 53.4 50.3 54.9 54.0 60.0 55.2
136 Rwanda 52.1 54.3 48.5 50.2 44.9 47.6 44.9
137 Central African Republic 50.3 54.8 53.6 54.7 57.3 57.0 n.a.
139 Togo 49.8 48.5 46.8 45.8 45.6 44.0 42.9
141 Sierra Leone 48.4 46.7 43.4 42.6 41.1 n.a. n.a.
146 Burundi 46.8 49.6 n.a. n.a. n.a. n.a. n.a.
147 Chad 46.4 49.4 48.7 49.8 49.3 45.9 44.2
148 Guinea Bissau 45.7 47.1 41.2 39.3 40.0 38.2 40.3
149 Angola 43.5 43.3 n.a. n.a. n.a. n.a. n.a.
151 Congo 43.0 43.6 43.0 41.2 42.4 40.9 42.2
154 Zimbabwe 35.8 34.0 33.9 31.6 33.9 33.9 37.0
155 Libya 34.5 34.3 28.4 28.9 31.8 31.7 32.2
Sub-Saharan Africa 54.7 55.2 53.5 53.5 53.5 53.3 53.6

North Africa 51.7 50.4 48.4 51.0 51.2 52.4 52.1
Source: The Heritage Foundation/The Wall Street Journal, 2007 Index of Economic Freedom.
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Overview
2003, which remains four ratifications short of the 15 “mostly unfree” (scores of 50–60 per cent). Only 8
needed for it to enter into force. Fourteen African countries have “repressed economies” with scores below
countries are members of the EITI (Extractive Industry 50 per cent, although this represents 40 per cent of the
Transparency Initiative). economies around the world which are classified as
such. Among specific economies during the past seven
years, the scores of 29 countries are now higher, and
Economic Governance the scores of 9 countries are worse.18 Thanks to reforms
to financial, monetary, and trade policies, Mauritius
Economic freedom suffered a minor setback in surpassed Botswana as the region’s economically freest
Africa (Table 9)17 according to the 2007 Index of country. Nigeria recorded the largest improvement,
Economic Freedom published by the Heritage graduating from repressed to “mostly unfree” status.
Foundation and the Wall Street Journal. The 2007 Zimbabwe continues to be the least free country in the
index fell to 54.3 per cent, down slightly from the region and the gap vis-à-vis the second worse performer,
54.6 per cent of the 2006 index. The decline in sub- the Republic of Congo, widened further.
Saharan Africa (-0.5 per cent) more than offset the
improvement in North Africa (+1.3 per cent). Even so,
the scores for both of these two years were higher than Access to Drinking Water and
those recorded in any of the earlier years for which the Sanitation in Africa
index was compiled.
Access to safe drinking water and sanitation is
Of the 39 countries graded numerically in the 2007 essential to human health and well-being, and thus
Index, none is classified as a “free” or “mostly free” the direct concern of two of the MDGs, but it also 51
economy. The bulk of countries—32 economies— contributes indirectly to achieving many of the other
have freedom scores of 50–70 per cent. Seven are MDGs. Unsafe drinking water and inadequate
“moderately free” (scores of 60–70 per cent) and 25 are sanitation cause illness and generates high health costs
Box 7 - Definitions
Access to safe drinking water is measured by the percentage of the population using improved drinking water sources. Similarly,
access to sanitary means of excreta disposal is measured by the percentage of the population using improved sanitation facilities. Improved
sanitation facilities are those more likely to ensure privacy and hygienic use. Improved drinking water technologies are those more likely
to provide safe drinking water than those characterised as unimproved.
Improved drinking water sources: Household connection / Public standpipe / Borehole / Protected dug well / Protected spring /
Rainwater collection
Unimproved drinking water sources: Unprotected well / Unprotected spring / Rivers or ponds / Vendor-provided water / Bottled
water / Tanker truck water
Improved sanitation facilities: Connection to a public sewer / Connection to a septic system / Pour-flush latrine / Simple pit
latrine / Ventilated improved pit latrine
Unimproved sanitation facilities: Public or shared latrine / Open pit latrine / Bucket latrine
Source: WHO/UNICEF Joint Monitoring Programme
17. Although the methodology used for measuring freedom was revised this year, previous scores were also revised to be consistent across
time.
18. The decline occurred in Central African Republic, Djibouti, Gabon, Ghana, Guinea, Malawi, Mali, Swaziland, and Zimbabwe

Overview
with negative impacts on economic activity. Children and 69 per cent, respectively, by 2015 is low. Sub-
are particularly vulnerable to water scarcity and poor Saharan Africa has the lowest drinking water coverage
quality. In the latest Human Development Report19, and the lowest sanitation coverage in the world, with
the UNDP estimates that access to safe drinking water over 322 million people without access to safe drinking
would diminish the risk of diarrhoea by close to 70 per water sources and 463 million without access to
cent in Ghana, and that improved sanitation would cut improved sanitation. The deficit in sanitation remains
the risk of infant mortality by 40 per cent in Uganda. much larger than for water because efforts have been
In water-scarce situations, women and girls also generally less intense. However, if progress in access to water is
bear the burden of carrying water long distances to not matched with corresponding measures for sanitation
their homes and are as a result excluded from other and effluent management, the volume of sewage
economic activities or education. produced will proportionally increase with negative
consequences for human health and natural ecosystems.
As discussed in an earlier section of this Overview
chapter, however, progress remains inadequate in relation Over the last 25 years water has become embedded
to needs and the likelihood of reaching the access in the sustainable development agenda. Substantial
targets for drinking water and sanitation of 78 per cent analysis has been conducted and many examples of
Box 8 - Milestones in the Building of an International Consensus

and African Responses to Water Development Challenges
1981-90 – UN International drinking water supply and sanitation decade

1992 – UN Conference on Environment and Development, Rio de Janeiro: set the stage for subsequent discussions on water.
52 1992 – International Conference on Water and the Environment, Dublin: four guiding principles on water
1996 – Formation of the Global Water Partnership to implement holistic approach to water, concretised in the concept of Integrated
Water Resource Management
1996 – Formation of the World Water Council, think tank on international water policy issues, leading organiser of the World Water
Forum held every 3 years
1997 – First World Water Forum, Marrakech
1997 – Formation of World Commission for Water in the 21rst century: A Water Secure World indicated that an additional annual $100 billion
investment in the water sector was required
2000 – Second World Water Forum, The Hague: Adoption of the African Water Vision for 2025
2001 – UN Millennium Declaration: setting of the water target of reducing by half the proportion of people without sustainable access
to adequate quantities of affordable and safe water
2001 – NEPAD and the Water and Sanitation Infrastructure Programme
2002 – Establishment of the African Ministers’ Council on Water (AMCOW) to provide political leadership, policy direction and
advocacy in the provision, use and management of water resources.
2002 – UN Conference on Finance of Development, Monterrey: new commitments on the part of
donors to raising official development assistance
2002 – UN World Summit on Sustainable Development, Johannesburg: MDG targets extended to sanitation and recognition of the
need for water storage and hydropower development.
2003 – Report of the World Panel on Financing Water Infrastructure (known as the Camdessus Panel)
2003 – Third World Water Forum, Kyoto
2004 – Establishment of the UN Secretary General’s Advisory Board on Water and Sanitation (UNSGAB)
2006 – Report of the task force on Financing Water for All (known as the Gurría Panel)
2006 – Fourth World Water Forum, Mexico
2006 – Human Development Report on Beyond Scarcity: Power, Poverty and the Global Water Crisis
2008 – UN International Year of Sanitation
2009 – Fifth World Water Forum, Istanbul
19. UNDP Human Development Report, 2006. Beyond scarcity: power, poverty and the global water crisis.

Overview
good practice highlighted. Improvements are needed to around 50 litres per day. Domestic needs increase with
in several key areas, notably in the management of the development; European households consume on average
water sector, the institutional set up, and strategic about 200 litres per person per day, for example. In
policy setting. Government budgets and development turn, development has an ambivalent impact on
assistance have also been insufficient so far to cover the availability, both increasing the pressure on resources
investment needs. Insufficient financial discipline and through increased activity and facilitating the
accountability combined with inadequate maintenance, development and implementation of new technologies
deficient billing and poor collection rates have prevented to exploit water better. However, in nearly all countries
the establishment of effective cost recovery mechanisms there is more than enough fresh water available to meet
by water utilities in most countries. The water and the needs of households for drinking water. The following
sanitation sector has also been the infrastructure sector section gives an assessment of resource availability and
least attractive to private investors. Ensuring adequate population access based on the latest available data by
financing remains a key challenge for improving water FAO and the WHO/UNICEF Joint Monitoring
and sanitation coverage. Programme (JMP). A word of caution is needed,
however, because the quality of data and especially
information regarding access remains problematic.
I - Taking Stock of Resources and Nevertheless, the JMP data provide useful information
Access on global trends and as such are used in the section to
take stock of global progress. When calling on specific
The minimum supply of safe water for domestic use examples, however, the following sections will refer to
is commonly estimated by WHO at 20 litres per person alternative sources of information as appropriate such
per day for drinking and personal hygiene. Factoring as the AMCOW, AfDB, EUWI, UNDP, WSP and 53
in bathing, cooking and laundry brings the figure up UNDP MDG Country Status Reports.
Box 9 - The Quality of the JMP Data and Initiatives to Improve Information
and Comparability
Data collection and treatment in Africa is generally poor and in some cases distorted for political use. It is consequently difficult to
assess the progress made to extend coverage but also to draw comparison across countries. For example, in Angola the national UNICEF
MICS survey of 2001 estimated the percentage of population with access to safe water at 62 per cent. A later UNICEF estimate however
suggests that just 34 per cent of urban population has access to safe water, this figure rising to 39 per cent for rural areas. Since almost
70 per cent of Angolans are urbanised, it is unlikely that the national coverage could be higher than 35 per cent. Meanwhile, the joint
monitoring programme provides a global estimate of 53 per cent for 2004. Similarly, in Mozambique, current official figures report both
urban and rural water coverage rates of about 40 per cent. According to the latest household survey, however, rural water access is only
27 per cent while urban water access is much higher at 64 per cent.
The data collected by the Joint Monitoring Programme and meant to monitor the progress of countries towards the water related
MDGs, have been criticised for lack of accuracy. To help improve the monitoring, some donors have supported the development of
alternative figures based on wider consultation. Recently, AMCOW, the AfDB, the EUWI, UNDP, WSP and the UNDP20 have
collaborated with local sources to produce MDG Country Status Reports for 16 SSA countries (Benin, Burkina, DRC, Ethiopia, Ghana,
Kenya, Madagascar, Malawi, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia), assessing the probability
to achieve the MDGS for rural and urban areas respectively, not only looking at past trends in coverage extension, but also at investment
gaps and quality of institutional arrangement to ensure sustainability.
20. Getting Africa on Track to meet the MDGs on Water and Sanitation, a Status Review of Sixteen African Countries, 2006, a regional
initiative by AMCOW, AfDB, EUWI, WSP and UNDP

Overview
1- Availability of Resource and Uses and withdrawn annually. Over a quarter of the renewable
Perspectives for the Future water used is imported from other countries. Water is
used primarily for agricultural purposes (68.4 per cent),
According to the FAO, some 14 870 m3/inhab/year followed by households (24.1 per cent) and finally by
renewable water resources are available in Africa, industry (7.5 per cent).
including internal and external resources at the national
level. These resources are considered overall abundant, Water availability in Africa is characterised by
but are only marginally exploited under managed extreme variability (of rainfalls, rivers…). To cope
conditions. One-third of countries experience some with this variability, important water conservation
pressure on their internal water resources as measured and water storage measures are often needed. Water
by the volume of internal renewable water per capita resources in Africa are also very unequally distributed
Figure 10 - Renewable Water Per Capita (m3/inhab/year), 2003-07
North Africa
East Africa
54 Southern Africa
West Africa
Central Africa
Africa
0 10000 20000 30000 40000 50000 60000
Source: Aquastat, FAO: www.fao.org/ag/agl/aglw/aquastat/main/indexfra.stm

http://dx.doi.org/10.1787/603581614167
Figure 11 - Water Uses in Africa, 2003-07
Domestic use
24%
8% Industrial use
68%
Agricultural use
Source: Aquastat, FAO: www.fao.org/ag/agl/aglw/aquastat/main/indexfra.stm

http://dx.doi.org/10.1787/006482437356

Overview
among countries. Africa hosts both some of the driest Africa extracts only a marginal portion of its water
countries in the world (in Northern Africa), but also resources compared to the rest of the world and has the
some of the best endowed (in Central Africa). Egypt lowest water storage capacity. Northern Africa and
and Libya receive very limited precipitation (some southern Africa however constitute exceptions. In South
51 and 56 mm/year respectively) and overall North Africa, no fewer than 458 dams were commissioned
Africa receives less than 3 per cent of the total between 1950 and 2000, initially for irrigation purposes
precipitation of the continent. Central Africa, by and then shifted towards the provision of drinking
contrast, receives 37 per cent of the total precipitation water. With demand growing, South Africa faces a
while accounting for only 20 per cent of land. DRC serious risk of shortages by 2020. In order to meet the
alone accounts for 23 per cent of internal renewable challenge, the country is investing both in water use
water resources in Africa. Consequently, most northern efficiency programmes (especially in the domestic and
African countries experience stress on their water agricultural sectors) and in alternative sources such as
resources: especially Egypt, but also Libya and Sudan. re-use of water, desalination and development of further
For example, Egypt meets some 97 per cent of its water-resource infrastructure. The municipally of
water resources with imports. Windhoek, in Namibia provides a successful example
of use of unconventional sources of additional water.
Availability evolves with climate change impact, Windhoek was one of the first cities in the world to
demographic pressure and economic development. In introduce direct recycling of effluent for drinking
2003-07, some nine countries are estimated to face purposes. Extensive water quality monitoring
water-scarce conditions with less than 1000 m3 of programmes are in place to ensure an appropriate
renewable water resources per capita per year and eight standard of water quality after each treatment process
others have to deal with water-stress conditions with and of the final water supply. 55
less than 1700 m3/cap/year. According to a study by
UNEP21 up to 25 African countries could be subject Water availability and quality are further affected by
to water stress or water scarcity by 2025, the most industrial pollution, poor sanitation and sewage practices.
severe cases arising in northern Africa. As water becomes In Congo, only 68 per cent of water samples provided
relatively scarce, its use as an input in agriculture and by the Société Nationale des Eaux are estimated to comply
industry needs to be progressively re-directed toward with the standard for good quality. Inefficient land use
activities with high value-added per m3 of water used, and agricultural practices (use of fertilisers and pesticides)
and demand management for household use becomes also contribute to worsen the problem. In Ghana, for
more important as well. Tunisia manages to provide instance, pollution is considered the most serious threat
nearly universal access to drinking water and sanitation to the sustainability of water resources. Pollution issues
for its citizens despite having a resource endowment are also serious in South Africa, where agriculture, mining
of less than 500 m3 of water per person per year. and energy sectors are key drivers of activity.
Box 10 - Increasing Available Supply in Tunisia
The country’s available water supply rose from 2.6 billion m3 in 1990 to 4.1 billion in 2005 and 11 major dams and 50 hill dams
are to be built in the next few years to increase it further. Demand still exceeds supply however and the government is trying to bridge
the gap by using treated sewage for agriculture, reusing drainage water and developing water-saving methods to prevent leakage between
production and use and to avoid waste by consumers. The authorities are steadily upgrading supply lines and distribution networks,
making taps and toilet-flushes more economical, educating major consumers such as hotels and companies and introducing sliding rates
that rise with consumption.
Source: see country notes in the body of the report.
21. UNEP, 2000. Global Environment Outlook: http://www.unep.org/Geo2000/english/0056.htm

Overview
However, wastage is certainly taking the greatest toll 2- Access to Drinking Water22
on availability. In most African cities over 50 per cent
of the water supply is wasted or unaccounted for. A Most countries in Africa are making insufficient
review of the water balance situation in Botswana progress towards achieving the water and sanitation
reveals that on average, more than 46 per cent of it is MDGs, as underscored by the WHO/UNICEF Joint
wasted though leakage, lack of demand management Monitoring Programme. In sub-Saharan Africa (SSA)
programmes and inefficient water use. In Mauritius, only 56 per cent of the population are served with
47 per cent of water consumption is unaccounted for, improved water and 322 million people are without
including 35 per cent due to pilferage and 7 per cent access to improved drinking water. Despite a
due to leakages as a result of old pipes (more than 50 7 percentage point improvement between 1990 and
years old). Unaccounted-for water also reaches 50 per 2004 in drinking-water coverage, the population has
cent in the cities of Cairo and Alexandria and 40 per grown even faster with the result that the absolute
cent in Algeria. Thus, addressing water conservation, number of unserved people has increased by about
demand management and efficiency of use could result 60 million over the same period. Moreover, this number
in significant savings. Demand-side management is expected to increase by an additional 47 million by
programmes are becoming increasingly common since 2015. Although 10 million people have been provided
they represent a low-cost alternative to capacity improved drinking water annually over 1990-2004,
development. They usually involve control measures this number would need to triple in order for SSA to
(in particular restrictions on certain uses of water, reach the water MDG by 2015.
rationing and supply intermittence), use of pricing to
rationalise demand, incentives to use water saving Northern Africa presents a very different picture.
56 devices, public campaigns to promote conservation The level of access is, with Latin America, the highest
and close control of distribution system to detect in the developing world at 91 per cent of the population
leakages. and the number of people without access to improved
water is expected to decrease further by one million by
In an effort to ensure a sustainable demand of water 2015. The region still remains slightly off track to
in a context of scarcity, the municipality of Windhoek achieve the water MDG for the region which is 95 per
introduced water demand management in 1994. The cent of total population. Within northern Africa,
strategy concentrates on changing consumer habits by Tunisia has already achieved the water-related MDG
increasing public awareness on the importance of water and virtually all urban dwellers are connected to drinking
saving and the implementation of block tariff system water (some 98.5 per cent through home connections).
with a steeply rising water cost with increasing
consumption. Some other measures include the Within SSA, Mauritius is a notable exception,
reduction of residential plot sizes, implementation of having advanced well beyond the MDG goals for
legislation to address water conservation in Windhoek, drinking water and sanitation. More than 99.6 per
improved maintenance and technical measures to reduce cent of Mauritians have access to water while 99.9 per
leaks. In 2006, unaccounted-for water fell to 10.3 per cent of the population has access to improved sanitation
cent, well below the African average and a very good services in both the urban and rural areas. In the 10
performance by international standards (for reference years after the end of apartheid, South Africa has also
unaccounted-for water reaches some 10-15 per cent in managed to increase access to safe water dramatically:
the United States and Canada and 15-20 per cent is a total of 21.4 million people have been provided with
considered good practice). access to an improved water source since 1994, reducing
22. Country data are available in the statistical annexes.

Overview
the percentage of people with no access from 39.9 to war, to the presence of national and international
7 per cent. In line with this active policy the Department NGOs, and to the different management models chosen
of Water Affairs and Forestry in 2003 established a by each province in a context of incomplete
target of universal access to water by 2008, well above decentralisation. In Mali, regional inequality is high,
the requirements of the MDGs (80 per cent of access with the isolated, low population density regions facing
by 2015), which is likely to be reached by the end of great difficulties in maintaining water facilities.
the decade.
Between 1990 and 2004, some 62 million people
However, most African countries remain off-track gained access to safe water supplies in rural areas of sub-
and some are even receding. Among key obstacles to Saharan Africa (corresponding to an increase in coverage
sustainable increase in access, war is exacting a heavy of 6 per cent) and a further 12 million people in North
toll on water and sanitation infrastructure. In Côte Africa (a 4 per cent increase in coverage). By contrast,
d’Ivoire for instance, the political crisis is leading to poor high migration from rural to urban areas, combined
maintenance of the water network and explains the with demographic pressure led to a mere 1 per cent
high percentage of deficient systems (60 per cent). In increase in coverage for the urban population in North
DRC, the war has led to a drop in access to drinking Africa and even to a 2 per cent decrease in sub-Saharan
water from 37 per cent of the population in 1990 to Africa. As a result, urban water coverage in Nigeria,
22 per cent in 2004. In Northern Uganda, civil conflict Algeria and Mozambique declined by over 10 percentage
constitutes a major hindrance to effective water and point between 1990 and 2004.
sanitation services development. Even when existing and
not threatened by wars, water infrastructures in SSA There are nonetheless encouraging examples. On
are usually aging and badly maintained leading to large current trends, Uganda is on course to achieve the 57
unaccounted for water and low quality of water. MDG target on access to water supply in urban areas.
In 2005/06, the government completed the construction
Of course, conditions differ greatly, depending on of 6 water systems, and construction of water systems
whether people live in major cities, in small towns, in is in progress in another 13 towns. In the large towns
peri-urban areas or in rural areas. In general, coverage operated by the National Water and Sewerage
in urban areas is far ahead of that in rural areas where Corporation (NWSC), service coverage improved from
women and children often need to travel long distances 67 per cent in June 2005 to 70 per cent in June 2006
carrying heavy containers of water. However, most of and new water connections increased from
the population growth currently occurs in urban and approximately 22 000 in the 2004/05 financial year to
peri-urban areas, putting great pressure on existing about 28 000 in 2005/06 due to a new customer-
infrastructure and posing tremendous health risk. The friendly connection policy. This growth trend is expected
UN Population Division estimates that urban to continue thanks to the emphasis being put on service
population in Africa grows by some 15 to 20 per cent to the urban poor with the support of an Output-
every five years, amounting to a doubling between Based Aid programme of the World Bank. Benin has
2005 and 2030 (from 360 million to some 783 million improved considerably its rural sub-sector by putting
people)23. So if the rural population is certainly the most in place a coherent strategy and programmatic approach
deprived, people in informal settlements in peri-urban that for instance ensures that sufficient funding is
areas are the most exposed to the consequences of channelled to rural communities bringing the MDG
deficient networks. Within countries, the situation target for access to drinking water within reach.
also differs across different provinces. In Angola, for
instance, the huge provincial inequalities are due to the Even if the MDGs were to be reached by 2015, the
extent to which different areas were affected by the backlog of unserved people will remain substantial. It
23. Source: www.esa.un.org/unpp/

Overview
is estimated by the Joint Monitoring Programme that of high population densities. High urban population
some 243 million people in Africa will be without growth resulting from migration has led cities to grow
access to drinking water (among whom 234 million rapidly in a few decades. Consequently, existing facilities
located in sub-Saharan Africa) and 348 million without have dramatically deteriorated where they existed and
access to sanitation (317 million in sub-Saharan Africa). infrastructure development has not kept pace with the
unplanned growth of informal peri-urban settlements.
3- Access to Sanitation Increasing population density associated with poor
sanitation habits (notably the flying toilets) have
The situation of sanitation in Africa is more dramatic contributed to deteriorating health conditions in these
than water both in terms of the low level of access and settlements. A similar situation often prevails in the
limited progress since 1990. In 2004, two out of three refugee camps in many African countries.
people in SSA had no access to improved sanitation, with
the prospect of a further increase of 91 million people Tanzania, however, demonstrates that progress is
without access to sanitation services by 2015. Very few indeed possible. There, access to some form of sanitation
countries are on track to reach the MDG by 2015 and is estimated at 90 per cent. The 2002 Census data
if SSA were to reach the MDG some additional indicate that in Dar es Salaam only 1 per cent of
35 million people would need to be provided with population had no toilet facility, while 83 per cent of
access to improved sanitation annually compared with population had access to pit latrines and 14 per cent
the current rate of 7 million. Progress has been greater of population had flush toilets. Most of the households
in northern Africa, where coverage has increased by without access to some form of sanitation facilities are
12 percentage points between 1990 and 2004 to reach in rural areas, where they account for 11 per cent of
58 75 per cent. The number of unserved people is also the rural population. These figures are consistent among
expected to decrease by an additional 11 million by several sources: the national census, the MDG Country
2015. Thus, northern Africa appears to be broadly on Status Report by AMCOW et al., and the country
track to reach the 83 per cent sanitation target by 2015. status published by WaterAid. The quality of the facilities
has however been questioned and according to
Rural sanitation coverage in SSA is half the urban AMCOW et al., a strict MDG definition would lower
coverage, i.e. almost totally absent in most areas. the rate of coverage to about 50 per cent. However, it
However, the negative consequences of insufficient would require only limited effort to upgrade the existing
sanitation services are much more acute in slums because facilities. These achievements did not happen over
Box 11 - Critical Situation of Sanitation in Chad
Except for some isolated projects, very few villages have improved traditional latrines, ventilated pit latrines or organised collection
of sewage or garbage and 88.5 per cent of households use the fields as toilets. Major village water projects do not always include sewerage,
which is fairly cheap but needs training and familiarisation of local people.
None of the country’s towns and cities have functioning systems for disposal or treatment of sewage, garbage and solid waste and
very few for rainwater. Those that do exist are antiquated. In February 1997, only N’Djamena, Moundou, Sarh and Abeche had urban
maps showing housing zones, transport networks and rainwater drainage facilities.
Hospitals and clinics have no established infrastructure or official ways of handling and disposing of biomedical waste, which often
ends up in the streets where it can be picked up by children and reused. Hospital sewage is similarly dumped untreated and can be reused.
In 2000, there was no regulation or standards applying to industrial waste and nearly all industries dumped their liquid effluent untreated
into waterways.

Overview
night. An active government policy aimed at ensuring II- Improving Management and
a latrine for all households was initiated more than 30 Shifting the Focus to Sanitation –
years ago, in 1973, based on the “Mtu ni Afya” the Key Challenges
programme (You are your health). Efforts to raise
awareness in households have been continuous, and The above assessment clearly highlights the need
hygiene and sanitation programmes continue to be for improvement in the water sector in the countries
well financed in government budgets. that have been lagging behind: improving institutions
Table 10 - Sustainability Scorecard (scores range from 0-100 per cent)

Countries Rural Urban Rural Urban Overall
Water Water Sanitation Sanitation sector
BENIN Institutional 67 74 78 76 76
Financial 73 51 54 54 91
BURKINA FASO Institutional 70 47 69 34 45

Financial 57 40 30 13 82
DRC Institutional 23 50 86 22 32
Financial 16 57 44 17 36
ETHIOPIA Institutional 70 47 69 34 46
Financial 57 40 30 13 82
GHANA Institutional 80 75 56 70 68
Financial 50 71 50 17 50 59
KENYA Institutional 55 50 31 23 55
Financial 43 36 10 32 50
MADAGASCAR Institutional 32 50 23 23 8
Financial 44 32 0 33 44
MALAWI Institutional 40 31 6 18 27
Financial 28 36 10 8 12
MAURITANIA Institutional 45 31 16 12 4
Financial 27 37 26 0 34
MOZAMBIQUE Institutional 39 56 26 28 41
Financial 25 70 24 12 47
NIGER Institutional 75 60 35 23 45
Financial 25 50 5 5 15
RWANDA Institutional 75 60 35 25 45
Financial 25 50 5 5 15
SENEGAL Institutional 75 81 50 59 86
Financial 57 86 40 58 75
UGANDA Institutional 80 65 67 52 80
Financial 57 74 50 25 57
ZAMBIA Institutional 47 74 43 32 63
Financial 53 32 31 34 42
All 15 countries Total 50.2 54.5 36.8 28.4 48.7

Institutional 58.2 56.7 46.0 35.4 48.1
Financial 42.5 50.8 27.3 21.7 48.8
Source: Getting Africa on track to meet the MDGs on water and sanitation, a Status Review of Sixteen African Countries, 2006, Report on
a regional initiative by AMCOW, AfDB, EUWI, WSP and UNDP
http://dx.doi.org/10.1787/475735215038

Overview
in both rural and urban areas and most notably a scarce resource with several other competing uses:
remedying the deficiencies of the sanitation sector. hydropower generation, irrigation, and industrial.
Moving forward requires ambitious reforms in Consequently, there is a need for a comprehensive and
institutions, legal frameworks, and policies in order integrated approach to ensure the sustainability of
to change the structure of incentives. This is possible expanding simultaneously access to drinking water and
in an African context as shown by the box on Senegal. sanitation while facilitating economic growth and
Progress also requires supporting these strategies with meeting ecosystem needs24.
adequate resources for their implementation. Table 10
ranks the institutional and financial sustainability The principles of a holistic approach to water were
of sector strategies for 15 countries by means of a established in 1992 at the International Conference on
scorecard system developed by AMCOW, AfDB, Water and the Environment in Dublin and at the
EUWI, WSP and UNDP. It clearly shows that United Nations Conference on Environment and
sanitation is the sector for which improvements are Development held in Rio de Janeiro. They led in 1996
the least sustainable based on current strategies, the to the creation of the Global Water Partnership whose
worst case being the financial sustainability of urban mission is to “support countries in the sustainable
sanitation. management of their water resources”. In 2002, the plan
of implementation of the Johannesburg World Summit
1- Implementing Integrated Water on Sustainable Development aimed at stimulating the
Resource Management (IWRM) adoption of IWRM by calling all countries to develop
integrated water resources management and water
Responsibility for water management is often split efficiency plans by 2005.
60 among different government ministries, between
regional and local authorities as well as the private IWRM is at various stages of implementation in most
sector, NGOs and donors which makes it difficult to African countries. In the table 38 countries are classified
develop a coherent strategic approach to the sector. in 3 categories, based on a survey conducted by GWP
Drinking water is also a basic need, but water is often in late 2005: i) 5 countries have plans incorporating the
Box 12 - The Successful Reform of Senegal’s Urban Water System
The grave financial crisis at the national water company SONEES (Societé National d’Exploitation des Eaux du Sénégal) caused by
excessively low rates and poor recovery of customer debts was the incentive for reform in 1995. This involved thorough reorganisation,
separating sanitation and drinking water supply and setting up a partnership between the government, a public water company, SONES
(Société Nationale des Eaux du Sénégal), and a private firm, SDE (Sénégalaise des Eaux). Development partners mostly provided the
funding for the new arrangement as part of clear sector policies – the Programme Sectoriel Eau (1995-2001) and its successor the Programme
Sectoriel Eau de Long Terme (2002-07). A new sector policy and an investment programme were drawn up in 2005 under the millennium
national drinking water and sanitation programme PEPAM (Programme national d’eau potable et d'assainissement du Millénaire). These
cover upgrading the network, providing connections for the poor and drafting a “second generation” of institutional reforms to meet the
sanitation needs of an expanding Dakar (including a new rates system that will raise more money to be spent on sanitation).
The 1995 reform law replaced SONEES by two bodies. The public firm SONES is franchised by the government and approves
three-year investment plans and supervises new investment, while the SDE is a private firm (part of the French group SAUR) operating
the network and selling its products under a leasing arrangement with the government and SONES, which also has a performance contract.
The leasing worked well and was renewed for five years in 2006, with the aim of balancing the books and improving drinking water
access for the very poor.
24. See African Development Bank (2000), Policy for Integrated Water Resources Management.

Overview
Box 13 - Defining IWRM
IWRM is a process that promotes the co-ordinated development and management of water, land and related resources, in order to
maximize the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.
This approach promotes more co-ordinated development and management of land and water, surface water and groundwater, the river
basin and its adjacent coastal and marine environment, and upstream and downstream interests.
IWRM is also about reforming human systems to enable people to obtain sustainable and equitable benefits from those resources.
For policy making and planning, taking an IWRM approach requires that:
• Water development and management takes into account the various uses of water and the range of people’s water needs;
• Stakeholders are given a voice in water planning and management, with particular attention to securing the involvement of women
and the poor;
• Policies and priorities consider water resources implications, including the two-way relationship between macroeconomic policies
and water development, management, and use;
• Water-related decisions made at local and basin levels are along the lines of, or at least do not conflict with, the achievement of
broader national objectives; and
• Water planning and strategies are incorporated into broader social, economic, and environmental goals.
An IWRM approach focuses on three basic pillars that aim at avoiding a fragmented approach of water resources management:
• An enabling environment of suitable policies, strategies and legislation for sustainable water resources development and management
• Putting in place the institutional framework through which to put into practice the policies, strategies and legislation
• And setting up the management instruments required by these institutions to do their job.
Source: Global Water Partnership
61
IWRM principles in place or a process well underway in South Africa, the Water Resources Management
– level 1; ii) 21 countries are in the process of preparing Department in Uganda, the Ministry for Water
national strategies which require further work – Resources and Infrastructure Development in
level 2; and iii) 12 countries are at a very early stage and Zimbabwe).
have not yet inserted IWRM principles in their national
policy and legal frameworks – level 3. The experience of these good performers shows
that it takes time to integrate IWRM fully into local
In the five countries highlighted by the GWP as management. Successful implementation crucially
good performers the IWRM principles are part of the hinges on institutional and human resources capacities.
main policy and legal frameworks, as well as in the Even in well-performing countries, such as Burkina,
various official planning and development programmes limited capacities have slowed progress. Successful
related to poverty reduction (PRSP for instance), development of a sound IWRM framework also requires
agriculture, energy and environment. Four out of the abandoning the supply-driven, top-down approaches,
five countries have put in place IWRM action plans: in favour of greater stakeholder involvement. Finally,
Burkina in 2003, South Africa in 2004, Uganda in where monitoring mechanisms are weak, progress is not
1995 and Zimbabwe in 2001. Namibia does not have easily measured and corrective actions not easily
a specific IWRM Action Plan but is implementing the undertaken.
water policy through various programmes and basin
committees. The whole water-sector review process is There is a need for strong national water policies
geared towards integrated water resources management. as a basis for legislation, strategic planning and
All countries are characterised by strong participation management. In many cases, unfortunately, policies
of all stakeholders from ministries to NGOs and strong are poorly developed and little legislation exists. For
leadership at national level (usually by the main ministry example, there is usually no clear institutional
in charge: the Department of Water Affairs and Forestry responsibility for water quality management. Policy is

Overview
Table 11 - Status of National IWRM Planning in African Countries
Region Level 1 Level 2 Level 3 Total

respondents
Northern Africa 0 Egypt Algeria

Morocco Libya 7
Tunisia
Mauritania
Sudan
Central Africa 0 Cameroon Burundi 7

Central African Rep.
Chad
Congo
DRC
Rwanda
Eastern Africa Uganda Eritrea Djibouti 7

Ethiopia
Kenya
Mauritius
Tanzania
Western Africa Burkina Faso Benin Cape Verde 7

Ghana
Mali
Nigeria
62 Senegal
Southern Africa Namibia Botswana Angola 10

South Africa Malawi Lesotho
Zimbabwe Mozambique
Swaziland
Zambia
Total 5 21 12 38
Note: regional grouping follows AfDB classification.

Source: based on GWP, Setting the stage for change, second informal survey, February 2006.
http://dx.doi.org/10.1787/226346857718
Box 14 - Monitoring Water Quality in Uganda
In Uganda, the water and sanitation sector has mechanism for monitoring and evaluation. There are 70 surface water monitoring
stations, 16 groundwater water observation wells, 112 water quality sampling sites and 18 climatic stations. A water quality and pollution
control laboratory has been established and equipped. Also, a Quality Assurance system has been established, including audits and external
proficiency scheme to ensure performance to international standards; the process for obtaining accreditation of the laboratory is underway.
However, standards and guidelines for water quality management in Uganda remain eclectic. These include the National Standards for
Drinking (potable) Water, the World Health Organisation (WHO) guidelines on specific local conditions and water use habits, National
Effluent Standards for discharge of waste water into the environment, and a Provisional Water Quality Guideline for untreated rural
water supplies.
needed to provide incentives for conservation, for should be accompanied by strong monitoring tools so
ensuring that planned expansion of water networks as to assess the progress in implementing IWRM and
takes into account sanitation and wastewater treatment, to identify the need for adopting corrective measures
and promote environmental protection. Policy making if necessary. A good example is provided by Uganda.

Overview
Box 15 - Trans-boundary Water Management in Tanzania
Tanzania is an enlightening case where about 43 per cent of water resources are shared with other countries: Lake Victoria is shared
with Kenya and Uganda; Lake Tanganyika is shared with Burundi, Zambia and Republic of Congo; and Lake Malawi is shared with
Malawi and Mozambique. Also, water uses are diverse ranging from domestic, industry, agriculture and livestock, wildlife and hydropower
supply (that accounts for 80 per cent of installed electricity generation capacity). A strong mechanism for water resources management
is thus indispensable if conflicts among users within and between countries sharing the waters are to be avoided and ensure that the
resource is used sustainably for human development.
In August 2003 the Tanzania parliament ratified a protocol providing guidelines for the establishment of institutions to manage
common water resources in SADC countries. Tanzania’s Water Ministry in collaboration with countries sharing river Zambezi waters
are establishing a River Zambezi Commission that will manage sustainable use of the basin’s waters. Tanzania is also establishing a commission
in collaboration with Mozambique Water Ministry for overseeing sustainable use of Ruvuma Basin waters. During 2005/06 Tanzania
and other countries sharing water from the Nile continued to manage the use of water through the Nile Basin Initiative (NBI) which is
an interim institution established for this purpose. The process of establishing the permanent Nile Basin Commission is in its final stages,
including the required assessment of water use needs in the country. In collaboration with Kenya and Uganda, Tanzania continued with
implementation of the First Phase of the Lake Victoria Environmental Conservation Project. The project, initiated by the East African
Community, intends to assess the extent of pollution in lake waters and their sources in view of designing and implementing collective
measures.
Co-operation at the regional level is also a key Some countries host all or parts of several river basins,
element of IWRM. Africa has a unique water resource such as Guinea, riparian for fourteen basins, and
endowment, with some 60 trans-boundary rivers, more Mozambique, riparian for eight. This situation requires 63
than in any other continent. Consequently, many strong regional co-operation to establish trans-boundary
countries share river basins. For instance, ten countries mechanisms that can minimise the potential for conflict
share the Nile river basin, nine share the Congo River by organising the sharing of resource, regulating their
basin and nine others share the Niger River basin. uses, co-operating in infrastructure development, and
Box 16 - Managing the Different Actors through SWAP, the Case of Uganda
In Uganda, the NGO and private sectors are very active in diverse water and sanitation related activities alongside the public sector
service providers. Private-sector firms undertake design and construction in the water sector under contract to local and central
governments. They provide maintenance services to water users in rural and peri-urban areas, and they manage piped water services in
the majority of small towns with piped water.
NGOs and Community Based Organisations (CBOs) are active in the provision of water and sanitation services (construction of
facilities, community mobilisation, training of communities and local Governments, hygiene promotion as well as advocacy and lobbying).
In August 2006 the Uganda Water and Sanitation NGO Network (UWASNET) had a membership of 150 NGOs/CBOs implementing
projects in the sector. Between January and December 2005, NGOs served an estimated number of 113 420 people with new water
sources (protected springs, shallow wells, boreholes, gravity scheme taps and rainwater harvesting faculties). Some of them have
demonstrated their ability to innovate (e.g domestic roof water harvesting, biosand filters, and leverage of household investments). The
UWASNET secretariat is supported financially by the government and development partners. In 2005, 5 per cent of the DWSCG and
11 per cent of NGO funds were utilised for sanitation.
In order to co-ordinate the participation of all stakeholders in the sector, Uganda adopted a Sector Wide Approach to Planning
(SWAP) for the Water and Sanitation Sector in September 2002. SWAP is a mechanism whereby Government and development partners
support a single policy and expenditure programme using a common approach. The SWAP mechanism has resulted into a harmonised
sector-planning framework in which duplication of efforts by different stakeholders has been minimised.

Overview
co-ordinating measures to tackle pollution. Tanzania inspections of the service providers and provides capacity
provides a good example of co-operation in trans- building to ensure compliance with performance and
boundary water management. corporate governance. It also approves tariff adjustments.
In 2005, NWASCO put in place water quality guidelines
Beyond regional co-operation, all stakeholders describing the types and frequency of water sampling
should be part of the IWRM dialogue. Their various for routine water testing. The regulator also established
roles need to be clearly defined and strong co-ordination Water Watch Groups to resolve disputes between
mechanisms developed. The first step for managing consumers and providers. It includes a customers’
water resources is to clarify the most appropriate level complaint handling procedure that encourages direct
of decentralisation and the corresponding allocation of resolution with the utilities. This mechanism also helps
functions. Central government should ensure that to monitor service quality. In 2004/5 most complaints
activities are co-ordinated across the broad range of concerned erratic supply, and some were addressing
actors. Uganda provides a good example in this regard. sewerage overspill and water quality.
Finally, there is a need for sound and autonomous 2- Strengthening Local Management
regulation to reap the benefits of partnerships in a
decentralised framework. Effective water resources Decentralising responsibility and ownership, and
management requires separating the development and providing a choice of service levels to communities,
regulatory aspects from water supply and sanitation based on their ability and willingness to pay can
delivery functions. A service provider cannot at the accelerate progress in expanding access. Communities
same time fulfil the regulatory or allocative functions have a better understanding of local realities enabling
64 to decide among competing uses without giving rise to quick and realistic decision making. Consumer groups,
conflicts of interest. Autonomous institutions should cooperatives, and professional associations have a key
carry out the regulatory functions. An example can be role to play in water resources management: setting
seen in Zambia, which established an independent development goals, participating in project
water regulator in 1997, the National Water Supply implementation, adapting technologies to local
and Sanitation Council (NWASCO), which has since conditions, and bridging gaps between public sector
developed regulatory tools and guidelines on service and communities. Over the last two decades, central
provision, tariff negotiations and yearly reporting. In governments have started devolving the responsibility
particular, NWASCO has been instrumental in for providing water and sanitation services to local
strengthening the monitoring of access to water and bodies and the responsibility for oversight to local
sanitation services through a close follow-up of the authorities. There was an expectation that the water
commercial utilities activities. It carries out detailed departments would subsequently evolve into
Box 17 - Institutional Reforms
The design of the regulatory system is the most essential step in the process of reforming the water sector, especially in countries
that seek to delegate water services to private operators such as North African countries (see table 12). An independent regulatory agency
provides political stability and safe economic environment for both private and public water operators. Often countries create an
autonomous water regulatory agency. However, in the practice these agencies are rarely independent from governments and are thus not
very useful. The separation of roles – political, strategic, regulatory and operational – is also a condition of efficient management. Another
important reform is the corporatisation of local water operators: establishing legal and financial independence of water operators reduces
administrative burden and political interference. It guarantees the transparency of costs and financial flows. It also ensures a fair and
fruitful competition among water operators, public or private. In addition, countries can create River Organizations, which are funded
through users’ fees and aim to finance local water projects. Thus, part of the public responsibility is delegated to the regional level, which
is able to evaluate more precisely the needs. This system also reduces the fiscal and administrative burden of the central state. Without
creating Basin Agencies, the administrative burden can also be moderated by decentralising part of water policy to regions.

Overview
Table 12 - Elements of Regulation in North African Countries

Algeria Egypt Morocco Tunisia
Presence of Not yet but planned Yes since 2004 No No

regulatory agency in the 2005 water
law
Independence of No
regulatory agency
Separation of Yes Important political Yes Some political

powers interferences interferences
Corporatisation of Possible since 2005 No Possible since 2002 No

local operators
Basin organisations No No Yes since 1997 No
Decentralisation Decentralised Highly centralised Decentralised Centralised
Decentralisation
process planned
Source: Perard, E (2007), Private Sector Participation and Regulatory Reform in Water Supply: the MEDA Experience, mimeo, OECD
Development Centre, Paris.
http://dx.doi.org/10.1787/037063805755
65
autonomous commercial entities, able to generate responsibility to provide water and sanitation services
sufficient revenue to cover at least their operation and in their respective areas. Consequently 50 out of 72 local
maintenance costs. However, although decentralisation authorities have established nine commercial water
is included in most countries’ institutional reform utilities in urban areas, which are expected in the long
packages, local authorities do not always have sufficient term, to be commercially viable. The commercial
management capacity to discharge their new utilities are responsible for service provision to 86 per
responsibilities. cent of the urban population; the remaining areas are
serviced either by 22 local authorities (13 per cent) or
Angola, for instance, established an ambitious private providers (1 per cent). Commercialisation has
decentralisation plan, but it was only partially been crucial to sustain improvement in service delivery.
implemented, with a number of local units existing only Over the years, the commercial utilities have made
on paper or not officially recognised by the central considerable progress in extending water supply coverage
government. The budget also remains mostly centralised, (from 58 per cent in 2004/05 to 73 per cent in
with central and provincial governments responsible for 2005/06), thanks to the support of the Devolution
allocating the funds to local authorities. Similarly, the 2002 Trust Fund (DTF) (a basket of co-operating partners’
Water Law foresees the creation of Empresas de Agua for funds which aims at assisting the providers to extend
water treatment and distribution at provincial level by the provision of services to the peri-urban poor). The
2010. EPAL was created in Luanda, but only a few of institutional framework for rural WSS, adopted by the
the smaller urban centres have so far followed suit. government in 2004, devolved authority to the local
Moreover, the regulatory framework attached to the 2002 authorities and communities, promoted community
Water law is still waiting for approval by the government. management in order to ensure service sustainability,
and embodied the WASHE (Water, Sanitation and
In Zambia, the Water Supply and Sanitation Act Health Education) concept to promote awareness
of 1997 delegated to the local authorities the regarding sanitation and environmental health.

Overview
Decentralisation is well advanced in Uganda. It transparency now exists in the awarding of contracts
was first adopted because a combination of by central authorities in the Ministry of Water Lands
mismanagement and reduced revenue collection had and Environment and/or National Water and Sewerage
led to unreliable services and deterioration of Corporation through properly constituted Contracts
infrastructure. Local Governments (Districts, Towns, Committees. However, such transparency is rare in
and Sub-Counties) were empowered by the Local the case of contracts awarded by district tender boards,
Governments Act (1997) to provide water services. which lack capacity and qualified manpower, and are
They receive grant funding from the central thought to be susceptible to political influence from
government and were authorised to mobilise local local councillors.
resources for implementing rural water and sanitation
sector programmes and to support small towns. Local To respond to the lack of capacities, some countries
Governments also appoint and manage private have put in place interesting mechanisms, relying for
operators for urban schemes outside the jurisdiction instance on public-public partnerships and the expertise
of the National Water and Sanitation Company. accumulated at central government to train sub-
However, a number of obstacles to further sovereign entities. The cross training of Umgeni by
developments in the WSS have been identified by TCTA in South Africa presents such an example,
the various stakeholders: i) poor technical competence where the South African government agency responsible
in the water and sanitation fields at district levels; for the implementation and funding of bulk water
ii) poor co-ordination of sector activities; supply developments helped to build up treasury
iii) inadequate capacity to handle the tendering, capacity at the water service provider. Uganda also
contract procurement and management of private- presents an interesting case where the National Water
66 sector implementation; iv) inadequate supervision, and Sewerage Corporation has partnered with the
monitoring and reporting capacity; and v) lack of Directorate of Water Development25 to train the local
capacity at sub-county and lower levels which are private sector and local governments in management
responsible for implementation. For example, and institutional development.
Box 18 - Cross-training of Umgeni by TCTA

(Trans-Caledon Tunnel Authority), the government agency responsible for the implementation
and funding of bulk water supply developments in South Africa
South Africa’s TCTA, a parastatal, was created in 1986 in order to “implement, operate and maintain the project works within South
Africa” according to the Treaty governing the Lesotho Highlands Water Project (LHWP). Because of its role in financing large-scale water
infrastructure, and its strong financial skills, TCTA was able to provide assistance to Umgeni Water, which operates under the direction
of the Ministry of Water Affairs and Forestry (DWAF). In 2001, TCTA assumed responsibility for treasury management services, with
a remit to strengthen Umgeni’s own capacity. By 2004, DWAF determined that TCTA had built sufficient capacity, and the handover
was completed in January 2005. Through this process Umgeni received sufficient training to perform treasury functions; in addition
training and financial modelling skills and computer programs were transferred, such as cash-flow projections, debt modelling, tariff
calculations, and other financial decision-making aids. TCTA remains a participant on Umgeni’s Water Finance Committee, and through
a service agreement, continues to provide assistance on issues relating to tariffs, funding and debt management, risk management,
formulating interest rate reviews, and other financial functions.
Source: Based on African Development Bank (2006), Studies on Financial Instruments to Facilitate Investment for Water Infrastructures, by
Rachel Cardone, based on TCTA website and discussion with Leslie Maasdorp, Chairman of the Board, TCTA.
25. The Directorate of Water Development is the government arm in charge of overall water-resource development and management and
is responsible for the provision of services to the rural areas and small towns under a decentralised management framework.

Overview
3- Advancing Sanitation and Wastewater even faster and maintenance is becoming even more
Treatment to the Top of the Agenda critical. Safe water supplies can only be secured if the
water resources are protected from contamination by
Progress in sanitation has been largely disappointing. untreated or inadequately treated, wastewater discharges.
Neither has progress in improving access to drinking In densely populated areas, increasing access to drinking
water been accompanied by an adequate increase of water can therefore only be safely achieved if the
wastewater treatment capacities. Cholera and infant sanitation situation is tackled simultaneously.
diarrhoea continue to figure prominently among the
six main water-related diseases which afflict half of the Sanitation does not receive the attention it warrants
African population. Cholera outbreaks affected Luanda for a variety of reasons. The costs might seem colossal
and other large cities of Angola in 2006. In Zambia to governments pressed by stringent budget constraints
some 7 615 cholera cases were reported between August even though they are small compared to the health
2005 and April 2006, most of them in Lusaka. In and environmental costs of inaction. Also, the sanitation
Ghana, lack of access to clean water and sanitation system is highly segmented between the initial provision
systems are estimated to contribute to some 70 per of facilities, the removal and transport of waste and its
cent of the burden of disease. In Madagascar, 60 per treatment, involving many different actors among
cent of infant mortality is related to low water quality which partnerships rarely exist. This situation is usually
and bad sanitation. Consequently, the World Health mirrored by a fragmented institutional framework
Organisation estimates the economic benefits to Africa where responsibilities are divided among several different
of meeting the water and sanitation MDGs at about state agencies. The current institutional framework for
$23 billion annually26, compared to an annual cost of wastewater management in Botswana, for instance,
intervention of $2 billion. comprises five departments responsible for some 11 Acts: 67
the Department of Waste Management and Pollution
Moreover, environmental sustainability will worsen Control, the local authorities, the Department of Water
if the water supply target is achieved without Affairs, the Directorate of Public Service Management
accompanying measures for sanitation and effluent and the Department of Local Government. Such
management. The volume of sewage produced will fragmentation results in low capacity to undertake
increase proportionally, exacerbating its threat as a large projects, a lack of accountability, and excessively
main source of water pollution. Some sanitation high costs of service provision. There is also a risk that
solutions adopted by households, such as septic tanks, sanitation facilities will be provided without ensuring
flush toilets and sewer connections without proper maintenance services. The complexity of handling these
treatment, can also cause water pollution. The excreta issues leads governments to favour projects with more
disposal situation is also worsening in Africa because immediate returns and this results in too little money
on-site installations are multiplying but are not properly spent on sanitation compared to water. Change is
emptied. Owners do not have the means or the possible, however, as illustrated by the case of Senegal.
awareness to pay for mechanical emptying and prefer
to pay smaller fees for manual removal. On top of the The difference between the costs of highly
sanitary risk for the removers, manual removal usually engineered sanitation solutions and the amounts
takes care only of the top layer and untreated waste is considered affordable points to the need to adapt the
often disposed of in open urban areas, inland waters technologies employed to local conditions. In fact,
and the sea. Moreover, with rapid urbanisation, the there is a range of potential technologies that can be
number of people per plot is increasing and the new adapted to the needs of communities, such as ease of
lands are often poorly drained and shallow. Pits fill maintenance, and entailing cost in line with their
26. Hutton and Haller (2004) Evaluation of the Costs and Benefits of Water and Sanitation Improvements at the Global Level, WHO, Geneva.

Overview
Box 19 - Senegal’s Pro-Active Strategy
Things have moved very slowly in sanitation in Senegal, so the government has made the sub-sector a priority, giving it pride of
place in the PEPAM, creating a special ministry for it, drafting a sanitation law and spending more on investment.
The sector strategy is based on synergy of urban and rural water operations and the need to increase the execution capacity of the
national sanitation department ONAS (Office National de l’Assainissement) and the sanitation directorate (Direction de l’Assainissement),
especially to handle the scale changes in rural sanitation. The aim is reduce financial barriers to access by encouraging shared connections,
subsidising investment (semi-shared and independent) and strengthening monitoring and assessment methods.
Second-generation reforms in urban areas will update the law on public drinking water supply. A rates survey is being done and an
ONAS-government performance contract introduced to improve the financial situation of ONAS. Infrastructure is to be boosted with
92 400 shared connections, 800 km of sewerage and 135 100 autonomous networks. Access will be facilitated through the complementarity
between shared, semi-shared and autonomous sanitation, as well as by increasing the capacity for treating sewage and disposing of
drainage waste and by finding and introducing a viable way to fund management of rainwater.
The plan in the countryside focuses on meeting demand, through training and education. Growth of the private sector is encouraged
by local people carrying out the work. The plan aims to promote technical packages that are simple to construct and maintain (ventilated
latrines, hand-flushed toilets, washbasins and standard public lavatories). The programme plans to build 355 000 autonomous domestic
connections and 3 360 public lavatories.
Investment in sanitation infrastructure between 2006-15 is estimated at 220.6 billion CFA francs in urban areas and 103.5 billion
in the countryside, and for related work 15.8 billion in urban areas and 16.3 billion in rural areas.
Source: Based on the intervention of Adama Mbaye, Director, Direction de l’assainissement, ministère de la Prévention, de l’Hygiène publique
et de l’Assainissement, at the OECD/AfDB expert meeting on Access to Drinking Water and Sanitation, Paris, December 2006.
68
willingness to pay. Beside the main sewerage network, In any case, with rapid urbanisation, and the
mini networks can be developed to cater for the needs development of informal peri-urban settlements, the
of densely populated settlements that are not connected prospects for connecting all households to sewerage
to the main sewer network, as shown by the experience networks in the short term are slim. Thus, on-site
of Mali. In informal peri-urban settlements, the main sanitation is often the only practical solution, as the
impediment to making these connections is often the Building Partnerships for Development in Water and
reluctance of the authorities to permit investments in Sanitation27 programme has found. Involvement of
the sanitation infrastructure that could lead to legalising communities in the construction of such facilities and
the settlements. their maintenance (through user fees) has proved useful
Box 20 - Mini-sewers in Mali
The only areas connected to mains sewers are central Bamako (and its suburb of Koulouba), the industrial zone and a small part of
the town of Ségou. Mini-networks of small-diameter sewers have also been built in Bamako to serve about 12,000 people and as a suitable
way to manage sewage in a densely-populated urban area. The preferred solution is family-funded individual sanitation but the government
(through the state housing department, the Office Malien de l’Habitat) has invested 139 million CFA francs building mini-sewers in
the Bamako neighbourhoods of Bankoni and Baco Djicoroni, as well as building them in the towns of Djenné and Timbuktu. Microfinance
institutions, sanitation co-ops and consortia are involved in funding, managing and cost recovery. The big problem is still the very low
cost recovery rate (about 20 pour cent).
27. Schaub-Jones, D., K. Eales and L. Tyers, 2006. Sanitation Partnership: Harnessing their Potential for Urban On-site Sanitation. Building
Partnerships for Development in Water and Sanitation, London.

Overview
to promote political ownership. Local actions of NGOs flow of orders. The public sector can also take the lead
and community-based organisations (CBOs) are also in co-ordinating demand. For example, the South
instrumental in influencing policy making. For example, African municipality of Durban has chosen to overcome
the coalition “Muungano wa Wanvijijihas” formed by the sporadic nature of demand by ensuring that pits are
NGOs and CBOs operating in the area of Nairobi, emptied every five years according to a specific schedule
emerged to improve conditions of the slum dwellers (regardless of volume), at no cost for the households.
of Kibera. The coalition managed to lobby for the In parallel, the city is supporting the professionalisation
destruction of some clusters for the development of of manual pit emptying operators, regulating their
communal facilities, thereafter managed by the residents activity to ensure safety and security (allowing work
under CBOs’ oversight. This shows that making progress only in daylight, requiring the use of appropriate material
on sanitation requires both strong partnerships and and securing the chain of custody from emptying the
awareness raising. pits to the safe disposal of waste for treatment).
Partnerships can help overcome the fragmented The sanitation situation can also benefit from large
nature of sanitation by providing a platform for awareness campaigns about the risks arising from
discussion among the different actors. Partnerships can untreated wastes, and also about the possibilities of
also consist in creating intermediaries (typically CBOs) using properly treated human excreta as fertilisers.
between households and (private) service providers. Good examples of behaviour change can be found with
Such intermediaries can catalyse demand and thereby community level sanitation programmes such as the
help the local service providers to develop a more stable AHEAD clubs in Zimbabwe.
Box 21 - Community Health Clubs in Zimbabwe 69
Community Health Clubs were first pioneered in Zimbabwe in 1995, in a small pilot project in Makoni District, with the objective
of creating demand for sanitation and rapid uptake of hygiene practices. From the start, the health clubs attracted a strong response from
the community with clubs of between 50 to 200 members. It was estimated that approximately 70 per cent of the members in each club
continued to attend the weekly health sessions for over six months. By 2001, there were 472 health clubs in Zimbabwe, with 27 784
members in 6 districts. In all districts Environmental Health Technicians, from the Ministry of Health, were responsible for facilitating
the health club sessions, thus institutionalising the programme within the government structure. The approach has led to important
changes in behaviour (Waterkeyn and Cairncross, 2005). Health club members constructed 3 600 latrines in two of the districts within
18 months in 1999 and 2000 which can be compared to some 8 000 latrines constructed in the entire country in 1998. The health
promotion needed to stimulate this strong demand was achieved at a cost of $0.55 per head for 12,630 beneficiaries in Tsholotsho District,
and $0.21 in Makoni District for 68 700 people. Despite minimal external support following the socio-political collapse of Zimbabwe,
the health clubs are surprisingly resilient and continue to prosper (Waterkeyn, 2005). In 2004, Africa AHEAD Association was founded
to replicate and adapt the CHC Approach throughout Africa by starting pilot projects in as many countries as possible.
Source: http://africaahead.com
III- Financing Vision 2025 that to ensure a sustainable water future, Africa
should invest some $20 billion annually until 2025, a third
There are various estimates of the additional financing of which for sanitation, a quarter of which for drinking
needed to reach the MDGs28. However, they all agree that water supply, and $1 billion for policy and institutional
the largest financing need by far is for the treatment of reform, capacity building, information, awareness and
wastewater. AfDB et al. estimate in the Africa Water education, and R&D. UNDP argues that in low income
28. They are reported in Fonseca, Catarina and Rachel Cardone, 2005. “Analysis of cost estimates and funding available for achieving the
MDG targets for water and sanitation.” WELL (WEDC/LSHTM/IRC), London. Internet:
http://www.lboro.ac.uk/well//resources/Publications/Briefing per cent20Notes/BN9 per cent20Fonseca.pdf

Overview
Table 13 - Investment Requirements to Reach the MDGs in Selected Countries

(in m$/year)
Total Investment Required
Public I Planned Surplus
New Rehab required Pub I /Gap
BENIN Water Rural 11 6 16 24 8

Urban 7 3 7 10 3
Sanitation Rural 6 3 8 2 -6
Urban 6 3 8 0 -8
BURKINA FASO Water Rural 62.17 7.83 68.96 10.97 -57.99
Urban 1.48 16.52 17.87 2.42 -15.46
Sanitation Rural 15.2 10.4 14.57 0.3 -14.28
Urban 11.65 - 11.52 3.67 -7.86
DRC Water Rural 52 12 39 7 -32
Urban 117 18 132 62 -70
Urban 188 11 40 1 -39
GHANA Water Rural 42 4 44 42 -2
Urban 72 9 81 36 -45
Sanitation Rural 25 - 14 10 -4
Urban - - - - -
KENYA Water Rural 12 51 57 33 -24
Urban 53 22 67 77 10
Sanitation Rural 9 25 0 2 2
Urban 51 14 59 14 -45
MADAGASCAR Water Rural 24 7 26 52 26
70 Urban 14 9 7 21 14
Urban 2 4 1 15 14
MAURITANIA Water Rural 5.5 9.1 13.1 11.4 -1.7
Urban 35.3 6.8 35.8 25.2 -10.6
Sanitation Rural 1.1 0.8 0.6 0.2 -0.4
Urban 5.1 1.5 3.3 0.8 -2.5
MOZAMBIQUE Water Rural 14 22 35 23 -12
Urban 42 12 47 44 -3
Urban 15 2 2 19 17
NIGER Water Rural 52 6.2 50 - -
Urban 0 20 20 - -
Sanitation Rural 3.6 1.2 2.8 - -
Urban 2.8 0.7 3.5 - -
RWANDA Water Rural 1.3 31 40 5 -35
Urban 24 4 0 0 0
Urban 4 1 0 0 0
SENEGAL Water Rural 30.7 2.1 32.4 9.7 -22.7
Urban 15.9 8.1 17.8 3.3 -14.5
Sanitation Rural 22 0 20 2.6 -17.4
Urban 35 10.7 43.9 23 -20.9
UGANDA Water Rural 29 44 69 46 -23
Urban 14 6 20 54 34
Urban 38 10 18 9 -9
ZAMBIA Water Rural 14.9 2.3 9 0.18 8.82
Urban - - - 0.27 -
Sanitation Rural 2.3 N/A 1 0.02 0.8
Urban - - - 0.03 -
Source: The Heritage Foundation/The Wall Street Journal, 2007 Index of Economic Freedom.
http://dx.doi.org/10.1787/853764276241

Overview
countries with limited coverage and a high level of poverty, funding. The Poverty Eradication Action Plan (PEAP)
public spending on drinking water and sanitation should clearly recognises the fact that the tariffs cannot fully
equal about 1 per cent of GDP with cost recovery and cover costs and, therefore, the Government still retains
community contributions making up an equivalent overall responsibility for financing investments in the
amount. These figures are more than twice as high as water sector. In 2005/06, the total public spending on
current levels of spending. Estimates for a selected number water and sanitation sector in 2005/06 was 103 billion
of countries are shown in the table below on investment shillings (i.e. some 0.6 per cent of GDP), 61 per cent
requirements to reach the MDGs derived from the of which was financed by donors.
assessment of AMCOW et al.
So far, however, government budgets and
Ultimately there are three main sources of financing: development assistance have largely been insufficient
through the user fees paid directly to the water utility, to cover the scale of investments needed. National
through tax revenues and their use to subsidise service water providers have also failed to help establish a
delivery and finance investments, and official financially sustainable system. Alternative sources such
development assistance and contributions by non-state as private participation have proved disappointing,
actors. The case of Uganda is enlightening as it shows with water and sanitation the least attractive sector to
the respective importance of the different actors in private investors.
Box 22 - Principles for Private-Sector Participation in Infrastructure

71
The shortage and low quality of infrastructure in African countries is an obstacle to meeting the populations’ needs, to enterprise
development, and to achieving the goals of the Millennium Declaration (MDG). World Bank calculations identify a need for $40 billion
investment in infrastructure per year, equivalent to 9 per cent of GDP of the continent, for the next 10 years in order to attain the MDG.
To meet these needs, encouraging private-sector participation in infrastructure is an option that governments cannot afford to ignore in
determining their overall strategies for enhancing and financing infrastructure.
The OECD Principles for Private Sector Participation in Infrastructure http://oecd.org/dataoecd/41/33/38309896.pdf aim to assist
governments to make the most of private-sector involvement in infrastructure development for the benefit of society. Specifically, they
offer a coherent catalogue of policy directions to be assessed as a first step in the authorities’ consideration of effective ways of involving
the private sector in their infrastructure sectors, in light of their own national circumstances and needs. The Principles cover five main
issues: 1) deciding on public or private provision of infrastructure services; 2) establishing an enabling policy framework for investment;
3) enhancing the public’s acceptance and the government’s capacities to implement agreed projects; 4) making the co-operation between
the public and private sectors work; and 5) communicating government’s expectations about responsible business conduct to their private
partners.
The Principles are of applicability to foreign and domestic operators, and to the various forms private-sector participation can take.
They can be used as a template for country self-assessment at national and local government levels, an aid for progress reporting by
public authorities, a tool for structuring regional and other inter-governmental co-operation and public-private dialogues. They may also
be used by donors as a reference point, and complement donor guidance on pro-poor growth in the infrastructure area.
The Principles will be used in the context of the OECD-supported regional initiatives, such as the NEPAD-OECD Africa Investment
Initiative.29 This will include, inter alia, the development of more operational guidance, specific to infrastructure sectors, such as water
and sanitation and developed through multi-stakeholder consultation and tested through pilot assessments of volunteering countries.
For further information see: www.oecd.org/daf/investment
29. For information on the NEPAD-OECD Africa Investment Initiative, visit www.oecd.org/daf/investment/africa

Overview
There are very specific risks for commercial funding are usually capital intensive. They involve high initial
in the water and sanitation sector, as underlined by the investment, long payback periods and low rate of return.
Camdessus panel30. The water and sanitation projects As highlighted by the AfDB31, the commercial rate of
Box 23 - Matching Demand with Supply: Feasible Financing Strategies

for Water Supply and Sanitation
An important obstacle to achieving the internationally agreed targets on water supply and sanitation in many countries has been
the failure to address the associated financial issues adequately: the costs of achieving the targets; how those costs could be minimised;
and the challenge of matching costs with available resources. The need for a fresh approach has become evident as many developing
countries and economies in transition struggle to maintain even the low levels of services currently delivered by water supply and
sanitation infrastructure, not to mention the need to extend it to reach a greater share of the population. The Danish government and
the OECD have jointly developed an approach to meet these challenges, particularly for investment-intensive environmental infrastructure,
such as urban and rural water supply, waste water collection and treatment. This approach, backed by a special decision-support tool
called FEASIBLE, has been applied in several transition economies including in the former Soviet Union, some new EU countries and
China. The main ideas underlying this approach are realism, affordability and cost-effective use of resources.
The basic approach underlying the FEASIBLE method is to collect detailed technical data on the existing state of infrastructure, set
and agree upon the public policy targets with stakeholders in areas like water supply and sanitation, determine costs and timetables for
achieving them, and compare the schedule and volume of expenditure needs with available financing. This analysis generally reveals financial
deficits which would likely arise during the planned implementation. FEASIBLE can then develop various scenarios to determine how
the gaps might be closed. This could involve identifying measures to help achieve the targets at lower cost; identifying ways to mobilise
additional finance; adjusting the ambition level of the targets; or rescheduling tasks and targets.
72 An important feature of FEASIBLE is the emphasis on realism and affordability. The model can assess the levels of finance (public,
private, domestic, foreign) that might be available under different macroeconomic conditions. In this way it provides a check on what
public budgets might realistically be expected to contribute. It can also help to assess the potential social implications of increasing tariffs
by determining the impacts of such price increases on household income. It helps to review the obstacles systematically that would need
to be removed in order to mobilise private sector and foreign financing for environmental infrastructure. Thus FEASIBLE can support
a process of dialogue and consensus building among stakeholders and build bridges between policy development and implementation.
The assumption underlying the FEASIBLE methodology is that governments should not be expected to finance all or even most of
the environmental expenditure required, or sponsor all or even most projects. The main role of government in relation to financing is
to establish the policy, regulatory and institutional framework as well as the incentive structure, within which resources from users, financial
markets, capital markets, local budgets and enterprises can be mobilised in a complementary way, and be applied as cost-effectively as
possible to achieve agreed goals.
These applications are more than technical exercises: by engaging all the major stakeholders involved in financing environmentally
related infrastructure, they support constructive dialogue and agreements that facilitated effective programme implementation, improvement
of service quality and the achievement of environmental goals. If properly developed financing strategies can help to generate additional
financial flows from water users, public budgets, donors, IFIs, and the private sector. In some cases, the results of such work have been
incorporated into medium-term expenditure frameworks in ministries of finance, and they could provide a useful input into Poverty
Reduction Strategy Programmes through setting the indicators for monitoring of the services quality inter alia taking account the need
to achieve the MDG targets on water supply and sanitation.
Following the initial focus on the countries of the former Soviet Union countries, the OECD is now planning to adapt the
methodology to the African context, where discussions are under way with Egypt as a possible pilot country. It is also planned to identify
a country in sub-Saharan Africa where this work could effectively support efforts to achieve the internationally agreed water targets.
For further information see: www.oecd.org/env
30. Winpenny (2003), “Financing Water for All: Report of the World Panel on Financing Water Infrastructure”, chaired by Michel Camdessus:
http://www.gwpforum.org/gwp/library/FinPanRep_MainRep.pdf
31. African Development Bank (2006), Studies on Financial Instruments to Facilitate Investment for Water Infrastructures, by Rachel Cardone.

Overview
return for a water infrastructure project is between 5 sustainability of the services. It is therefore crucial that
and 10 per cent compared to 17-25 per cent in the financing be designed not only to cover investment
power sector and 25-30 per cent in telecommunications. needs but also to provide for recurring expenditures,
The resulting water-related infrastructure is fixed and including maintenance.
very specific; it cannot be used for other purposes or
removed from the country. This profile generates high African countries are characterised by wide variations
contractual risk especially in a context of poor initial in payment capacity. While there is a potential for full
information and a weak regulatory environment. The cost recovery of providing water services in most urban
revenues come mainly from user fees or government settings, extension of networks in peri-urban areas and
subsidies in local currency while funding is largely in service delivery in many rural areas require subsidisation
foreign currency, exposing the investor to high foreign of capital expansion. By contrast, sewerage and
exchange risk. Management of the projects are mainly wastewater treatment are not necessarily affordable by
local, exposing the investors to weak management and the majority, even in urban areas. Accounting for the
financial capacities of the sub-sovereign entities (sub- wide variations of affordability across users, cross-
sovereign risk). Finally, as a basic need, water has subsidisation between the wealthier and the poorer
important political repercussions, and therefore justifies users is necessary, together with subsidisation across
political interference (notably in the setting of tariffs). water and sanitation and clear differentiation of
Such a project profile deters commercial financing and industries (particularly the polluting ones that should
explains that most funding to the water and sanitation bear the costs of pollution abatement). According to
sector mainly comes from government and donors. the “polluter pays” principle, the tariffs applied should
However, new developments in the area of guarantees reflect the cost of treatment and therefore depend on
and risk mitigation mechanisms supported by the the volumes and pollution content of the wastewater. 73
donor community are helping enhance attractiveness Alternatively, it could also give incentives to industries
of the water sector and make sub-sovereign financing to treat wastewater on site (in line with clear agreed
a viable option. standards) to reduce the burden on treatment plants.
Cross-subsidisation is not at odds with the cost-recovery
1- Implementing Cost Recovery principle since the average tariff can be set so as to
Mechanisms ensure financial sustainability of the provider, without
recourse to government support. The tariff structure
Establishing an appropriate tariff structure is a key that is usually implemented to incorporate cross-
element of water management since charging for water subsidisation is a stepped or progressive one where a
provides an incentive for its efficient use and the low price is charged for a small quantity of water, and
revenues can cover most of the costs of service provision. the tariff increases with successively higher levels of
The objectives of cost recovery are to ensure sufficient water consumption. This structure has the additional
revenues to deliver services of quality over the long advantage of encouraging water conservation, unlike
term, extending the network to serve lower income other financing systems, such as property taxes.
consumers while providing incentives to make better However, monitoring consumption levels requires an
use of scarce resources. The cost recovery ratio measures efficient metering system and the prevention of illegal
the extent to which user fees with other direct connections. Also, implementing different levels of
contributions can meet service costs, and contribute to cross-subsidies (across user categories and activities)
financial sustainability of the sector. The costs can be can lead to a complex tariff system that may be difficult
broadly divided into three main categories: i) operating to administer.
and minor maintenance expenditures, ii) infrastructure
maintenance and replacement expenditures and Wide variation in payment capacity is also matched
iii) long-term cost of capital. In the past, maintenance by variations in the costs of water provision. This
has been largely overlooked, jeopardising the reflects the differences in technologies used, notably to

Overview
access newer, more remote and deeper sources. In the consequences of not paying, but also on the
Uganda, for instance, the per capita cost of providing consequences of poor water and sanitation conditions
improved water to people in rural areas is $34 on on health and education, help to increase willingness
average, but it varies between Districts. In some cases to pay. The usual rule of the thumb to appraise
this is a result of the technology mix: there has been a affordability is that households should not pay more
steady increase in per capita costs due to a marked than 3 to 5 per cent of their incomes for water services.
reduction in the availability of low cost options such However, for a variety of cultural and historic reasons,
as springs and shallow wells, increased expenditure on paying for water and sanitation services is not well
overheads (in part as a result of the creation of new established in Africa. Following the Gurría task force33,
Districts) and an increase in the cost of other resources it is however largely admitted today that “free water
(e.g. fuel, construction materials). In the 2005/06, services ultimately may be very expensive for the poor”.
financial year the per capita cost for small towns was
$96, attributable to cost of diesel generators, poor state Rural areas face a particularly difficult challenge to
of schemes, and the purchase of bulk water. With tariffs ensure financial sustainability as most of their population
ranging from 800 to 2 500 shillings per cubic metre, it is poor and can hardly cover even operating and
is estimated that only 17 out of 53 small towns are able maintenance costs. Some transfer pricing mechanisms
to cover their operation and routine maintenance costs. between urban and rural areas exist that involve for
instance levies on volumes of water “imported” by
As of today, very few water utilities are financially cities from basins in rural areas. However, the challenge
sustainable. Even in urban areas, tariffs rarely fully remains great as the population in richer areas might
cover all operating and maintenance costs, not to not be wealthy enough to support the resulting costs
74 mention charges for capital raised to finance investment in most African countries. Also, the utilities are
expenditures. In northern Africa, for instance, the increasingly autonomous and managed on a commercial
World Bank finds that only the water utilities in Rabat basis, making such transfers difficult. In the specific case
and Casablanca reach operating cost recovery32. By of sanitation, the financing can not be raised through
contrast, the water utilities in Cairo and Alexandria are tariff-based user charges in areas where networks do not
estimated to cover only some 25 per cent of their exist. Its cost, therefore, can hardly be covered by
operating costs. Consequently, most water utilities rely households. The AfDB34 concludes that most financing
on subsidies at least for network expansion and for rural water and sanitation will continue to come
modernisation. in the form of a mix of loans and grants, mainly from
international development assistance (whose
Ensuring sustainable access for all: the respective role contribution is estimated at 80 per cent), from national
of user fees and subsidies. governments (15 per cent) and from communities (for
5 per cent) in the form of free labour and material for
The key elements determining users’ payments are construction and maintenance.
affordability and willingness to pay. Willingness to pay
is in turn a function of quality and reliability of services. It is widely acknowledged that sewerage operations
It is also influenced by the existence of competing should be linked with water services in an integrated
water sources or by different price policies in tariff system to reflect the direct link between wastewater
neighbouring communities. Awareness campaigns on removal and provision of drinking water. However,
32. World Bank, 2007. Making the most of scarcity. Accountability for better water management results in the Middle East and North Africa.
33. World Water Council, 2006. Enhancing access to finance for local governments. Financing water for agriculture: Task force on Financing
water for all, chaired by Angel Gurría.
34. African Development Bank (2005), Rural Water Supply and Sanitation Initiative, implementation Plan and Resource Mobilisation
Strategy.

Overview
sanitation remains the most difficult element to finance In order to provide some answers, the AfDB35 makes
through cost recovery as shown by the case of Tunisia. a useful differentiation between the lower middle-
The costs of sewerage and wastewater treatment are income households, the developing poor, the coping
usually higher than the costs of networked water supply, poor, the very poor and the destitute. For the lower
depending on the level of treatment. However, charges middle-income households, employed at low wages
for sanitation services are usually set at only 20 to but living in conventional housing, water and sanitation
30 per cent of the costs of water provision. Since tariffs are affordable but need to be structured to allow
networked sanitation is only available in formal housing delays in payments in exceptional circumstances (as they
areas, such a level of cost recovery implies that some are sensitive to shocks and might be pushed into
70 per cent of sanitation costs are subsidised by general poverty). The developing poor live in informal housing
tax revenues. In Algeria, for instance, sanitation fees but have sufficient income to invest in developing their
amount to 20 per cent of the water bill, even though dwelling. The coping and developing poor could afford
improvement in services is much needed: only 14 of differentiated household connections but for low
the existing 45 treatment plants work and the country pressure, limited hours and a limited volume of water.
reports 1 such plant for 711 000 inhabitants in 2005 The remaining poor have little means to access
to be compared with 1 per 5 000 inhabitants in France individual water and sanitation facilities, but would
in 1998. benefit from well-managed community-based toilets
and sanitary blocks. The destitute, living on the streets,
Subsidies remain a central issue in the general would need to access the services for free.
problem faced by service providers and governments
of ensuring greater access for the poor while preserving A large number of the poor currently depend on
quality and quantity of access for the already connected. water vendors, and therefore already pay at least ten 75
Box 24 - Implementing Cost-recovery in Tunisia
The price of drinking water and sanitation in Tunisia is not used in its distribution or in active regulation of demand, but is part of
cost recovery and depends on use (domestic, industrial or for tourism) and the amount used. Consumers get a single bill combining
charges for water (from Sonede) and sanitation (Onas) and a government tax. The water and sanitation parts include a fixed charge (to
cover maintenance) and a variable one according to consumption. The government keeps the fixed charge the same for the smallest consumers
as a way of helping the poor and has steadily increased it for other levels of consumption and other users (tourism, industry). The variable
rate increases according to five levels of consumption (in cubic metres). The distinction between sliding rates for domestic consumption
and for type of use allows for some consumers to be subsidised by others. Sanitation’s share of the total bill varies between 21 and 46 per
cent for domestic consumers, while industry’s is 32 per cent (low-level pollution), 42 per cent (medium pollution) and 49 per cent (heavy
pollution). In the tourist sector, its share is 54 per cent (more than water’s share).
Revision of the drinking water price structure has enabled Sonede to balance its books, but the structurally-indebted Onas is in dire
financial straits and its debt grew from 18 per cent of turnover in 2002 to 35 per cent in 2004. Onas’ revenue mainly depends on its
charges, which do not cover costs very well because they are fixed. The biggest operating costs are for depreciation and wages. The government
contributed an estimated 64.9 per cent of Onas’ income in 2004 (a subsidy per cubic metre of sewage that was more than the average
price paid by households) but this was not enough to cover investment needs, operating costs and renewal work, thus threatening the
quality of Onas services.
The National Statistics Institute’s household survey in 2000 showed that the average water and sanitation bill was only 0.93 per cent
of total per capita spending, well below the usually accepted level of 3 per cent of income. Sonede says 90 per cent of its customers pay
less than the cost price for water.
35. Guidelines for user fees and cost recovery for water, sanitation and irrigation projects, 2006.

Overview
times more for water than middle-class urban dwellers Subsidies in the form of progressive tariffs with
with access to piped water. However, since the poor increasing levels of water consumption are however
purchase only small quantities of water, their observed detrimental to large families and to groupings of
“willingness to pay” does not imply that they could pay families (to which the poorest might resort). Moreover,
the equivalent price for larger volumes. In poor, isolated subsidising services only helps the poor if they have
rural areas, payments in cash are not common. Free access to water. Otherwise, subsidies become counter-
labour forces and inputs are used to develop the effective as they leave little funding for extending
networks and ensure some maintenance. However, infrastructure to the unserved. Helping the poor in
recurring costs cannot be covered in this way and areas where connection is low requires providing
therefore still require subsidies. When they are necessary, them with the means to access water and sanitation
subsidies should follow the key principles of affordability facilities, rather than providing on-going support for
(for the general budget), targeted (to the groups in consumption. In this respect, social funds, access to
need) and transparency (clearly identified in the fiscal credit and cost sharing are key elements. The NWSC
accounts). There are recognised difficulties in identifying of Uganda provides an interesting case in which
and reaching target groups. Consequently, targeting areas connection subsidies are offered to promote access
where the majority of poor households are located as opposed to consumption subsidies. However,
could help avoid distortion. subsidies that lower investment costs might not be
Box 25 - Affordability and Subsidies in Namibia
In Namibia, survey data based on water tariffs in 2003/04 and 2004/05 show that low-income families or pensioners with an income
of less than N$ 600/month cannot afford to use the 6m3/month, which is regarded as baseline water for a urban family of five with full
76
water services. In rural areas the situation is likely to be worse. The non-payment of accounts leads to a vicious circle, where both NamWater
and local authorities need to increase their tariffs to compensate for non-payment of accounts. This practice makes services even more
unaffordable to the poor in Namibia. In both Windhoek and Rehoboth, the intention of the City Council is to subsidise low-income
households to make baseline water (40 litre/person/day) available at a lower price. Windhoek currently applies a raising block tariff: each
month, the first 6m3 are provided at a subsidised rate, while in the 6-to-36m3/month range the tariff is at average cost-recovery levels.
For consumption over 36m3/month, the tariff is set at long-term marginal cost (above average costs). There is a general consensus within
municipalities and at NamWater that the strategy adopted in South Africa of providing free water up to a consumption of 6m3/month
would be ineffective, as it would create enormous problems for municipalities to cover costs of supply and increases in water wastage.
sufficient to help poor households to acquire a purposes. In Cote d’Ivoire, the partnership between the
connection in case of non-financial obstacles. Land water distribution company (SODECI )and CREPA
and property titling can be an issue, as well as growing (Regional Centre for low-cost Drinking Water and
tenancy that has accompanied rapid urbanisation. If Sanitation) allowed 300 more poor households in
the cost of providing and maintaining sanitation are Abidjan to be connected to the network. CREPA
not factored into the rent, the poor tenants have provided micro loans to cover the cost of the connection
little incentive to develop facilities in places they do as well as assistance to the household to manage the
not own, while the landlord is only likely to provide payment of bills and repayment of the loan.
a crude structure.
• Strengthening utilities: the role of service providers,
The use of microfinance in the water sector is a governments and the private sector
recent development driven by the need to increase
connections and improve the maintenance of existing Strengthening utilities is a key step in the process
facilities. As such examples, ASCI in Ethiopia and K- of establishing sustainable cost-recovery mechanisms.
Rep in Kenya provide financial services for maintenance The performance indicators used to evaluate the

Overview
Box 26 - Microfinance for Rural Community-managed Water Projects in Kenya
Kenya provides interesting examples of projects pre-financed with market-based finance from domestic private microfinance
institution (K-Rep Bank) both for rehabilitation/augmentation of existing projects and new, greenfield projects. Under this scheme, K-
Rep pre-finances loans worth 80 per cent of the capital costs for small-scale piped networks; the community is responsible for the other
20 per cent. The communities are also responsible for paying the costs of their technical and financial assessments. On project completion,
40 per cent of K-Rep’s loan will be provided as an Output-Based Aid (OBA) subsidy (performance-based subsidies, as developed below
in the section on aid) which will help to keep the tariffs affordable in the short run. In practice, the OBA subsidy is intended for the first
few communities, and, on positive outcomes, further lending by K-Rep will be without the subsidy.
The expected outputs are increased service coverage (through direct household connections and kiosks) and increased quantity of
water supplied. The key innovations of the schemes are the use of technical assistance to meet high transaction costs and build local
capacity, the use of OBA to address affordability concerns and a risk-sharing mechanism by Community Water Projects and a CWP
employed Project Engineer.
The key parameters that allow replication of such schemes in other countries are a conducive policy environment that gives “space”
and does not crowd out private market finance, a policy environment that supports a gradual move towards cost-recovery tariffs,
reasonably well developed domestic financial institutions, a regulatory framework that gives “legitimacy” to small service providers and
viable demand from an adequate “market size”.
Source: Based on the intervention of Meera Mehta, Water and Sanitation Programme, at the OECD/AfDB expert meeting on Access to
Drinking Water and Sanitation, Paris, December 2006.
efficiency of utilities are usually the staff per thousand action points, distinguishing between the respective
connections, level of non-revenue water and billing role of utilities and governments. Utilities were urged 77
and connection efficiency. A level of bill collection to improve revenue collection, to minimise unaccounted
below 90 per cent either reflects a deficient billing for water, to introduce financial and management
system or that the tariffs are perceived as unaffordable information systems and to improve customer relations.
or unacceptable given the quality of service. These For example, the Lusaka Water and Sewerage
performance indicators are not easily available for Corporation of Zambia embarked in late 2005 on a
African utilities, making the assessment of their financial programme that included reducing the waiting time
sustainability difficult. for the installation of a connection to 10 days and
improving customer service (notably through greater
A practitioners’ workshop was organised by WSP responsiveness to complaints). The staff were sent to
in Pretoria in August 200636 that highlighted some the different communities to identify the facilities,
Table 14 - Bill Collection Rate in Selected Countries

Countries Companies Bill Collection Rate Source
Burkina 36 urban centres 72% Well briefing Note 33, 2006

www.lboro.ac.uk/well
Mali 16 urban centres 94%
Senegal 56 urban centres 98%
Tanzania Dar Es Salaam 60%
Tunisia SONEDE 99% Perard (2007)
Uganda NWSC 90% NWSC, 2007
Zambia Average of the 9 commercial utilities 77% NWASCO, 2005/2006
http://dx.doi.org/10.1787/404832583528
36. http://www.wsp.org/filez/pubs/2122007120644_MobilizingMarketFinanceforWaterUtilitiesinAfrica.pdf

Overview
inform the customers and negotiate debt settlements of Mexico, the UN Secretary General’s Advisory Board
and call centres were established. The billing process on Water and Sanitation is also working on
was also improved with cross-checking of customers’ strengthening capacities of the key players in the water
addresses and cancellation of double billing. As a result, sector by establishing a Water Operators Partnership
by the end of 2005, 80 per cent of customers had to promote co-operation. The objective is to set up
noticed positive changes in the management and mechanisms that will allow utility operators to provide
delivery of water services. In order to address the mutual support on technical and managerial issues
problem of payments arrears in Namibia, a number of without intermediaries.
towns began installing pre-payment water meters in
2003. This measure met widespread criticism from Governments also have an important role to play
civil society organisations and was plagued from the in strengthening water utilities. It is widely recognised
beginning by a high incidence of faulty equipment. An today, following work by the World Bank and others
alternative mechanism consisting of community level that governments have a key role to play in setting an
water committees that collect money from different environment which is conducive to business, notably
household for the use of shared taps and toilet facilities by improving the institutional, policy and regulatory
has apparently been more successful, although it has frameworks. One key element of such a business-
been used only on a very limited scale. conducive environment is predictability of agreed
government transfers and respect for contracts. In
Benchmarking among water utilities also provides Zambia, for example, six out of nine local commercial
a basis for promoting efficient performance. To that end, utilities had reached operational cost coverage by the
the NWSC of Uganda has partnered with water utilities end of 2006, but the number would have been even
78 in Kenya, Tanzania, Nigeria and Zambia to share higher were it not for the non-payment by government
experiences and undertake performance enhancement institutions for their water use. Governments can also
programmes. Following the 2006 World Water Forum help to strengthen water utilities by strengthening their
Box 27 - The Success of NWSC-Uganda and Relevance

for Other African Countries
In NWSC-Uganda, the internal reforms and organisational restructuring carried out from 1998 have led to significant efficiency
gains. Subsequently, the NWSC has improved its turnover from $11 million in 1998 to $33 million in 2006 and operating profit after
depreciation has increased from a loss of $0.4 to $2.4 million. Through this improved efficiency, NWSC has managed to generate its
own internal finances and constructed more than 1 060 km of new water mains to serve the peri-urban communities and the urban
poor, for which the government or development-partner funds were not required. This has helped to improve service coverage from 48 per
cent of target households in 1998 to 70 per cent in 2006. Internal sources of finance as a percentage of total capital investments reached
a 45 per cent compared with 21 per cent in 1998. Consequently, internally generated funds through user fees currently cover all operation
and maintenance costs, the cost of free new connections, depreciation, the construction costs of secondary and tertiary mains and a small
contribution to major extensions.
In NWSC-Uganda, the tariff is split into “public stand pipe”; “domestic”; “institutional” and “commercial” rates. This allows the
Corporation to offer fair, sustainable and enforceable tariff rates to different customer categories. Furthermore, in addition to the new
connections policy, NWSC has carried out tariff adjustments to keep user-friendly tariffs: reduction of the connection charges and reconnection
charges by 50 and 75 per cent respectively, elimination of the minimum charge, indexation of the tariff against the factors of domestic
and foreign inflation, exchange-rate depreciation and the electricity costs, and gradual re-balancing of the tariff thereby reducing the
cross subsidy amongst the customer categories.
However, the tariffs are not sufficient to meet external debt service obligations as full cost recovery would require, since this would
mean significant tariff increases that cannot be afforded by the citizens or would be done at the expense of coverage extension.
Source: Based on the intervention of Dr. William T. Muhairwe, Managing Director, NWSC at the OECD/AfDB expert meeting on
Access to Drinking Water and Sanitation, Paris, December 2006.

Overview
balance sheets, e.g., through debt for equity swaps. In more than 99 per cent of bills are paid and access to
Uganda, for example, the NWSC has proposed water is available 24 hours a day in all cities. The state-
converting the present value of NWSC long-term debt owned utility behaves in this case as a private company
(comprising interest and principle amounting to would, seeking cost recovery. The same efficiency
$90 million) into government equity in the company standards can be found in the water public sector of
under the condition that NWSC undertake a 5-year South Africa and Uganda. In other countries, however,
network expansion programme. such as Senegal and Morocco, the private sector has been
playing an important role to extend coverage and
Examples of good performance exist both for state- improve quality of service. The difficulties faced by
owned and privately run utilities. In Tunisia, the water the private sector in its involvement in the water and
and sanitation sector is entirely state-owned and fully sanitation sector often reflect difficulties inherent to the
centralised; yet it displays very sound performance: sector – huge infrastructure needs, the presence of
unaccounted-for water was only 18.2 per cent in 2004, externalities and tremendous sanitation backlogs.
Box 28 - Successful Public-Private Partnership in Urban Water Supply in Senegal
The success of the public-private partnership is due to an appropriate institutional framework, suitable incentives and the major
role of the government, which has inspired confidence in its partners. The private firm Sénégalaise des Eaux (SDE), owned by the French
group SAUR, is upgrading the supply network under its contract but also because increased water consumption means bigger profits.
The stakeholders have also established a good dialogue, with contracts reviewed every six months by a committee that monitors SDE’s
performance. The review is based on 18 criteria spelled out in the contract between SDE and its public counterpart, the Société Nationale
des Eaux du Sénégal (Sones), which is responsible for investment plans and supervision of them. Achievement of each of the main targets
79
is rewarded and failure incurs fines. This system has made SDE more efficient and the firm increased its customers by 69 per cent between
1996 and 2005, had a volume production/sale ratio of 80.5 per cent (68.2 en 1996), network efficiency of 80 per cent (the target is
85 per cent) and has had balanced accounts since 2003. The government has played a strong regulatory and coordination role and has
kept its promises, notably by paying its own bills (making for SDE’s 98.3 per cent bill collection rate). The necessary rate increases provided
for in the SDE-Sones contract have also been made.
Together with the traditional national utilities, local however, they are more likely to be considered as part
small-scale operators can contribute to expanding of the solution because they have a strong knowledge
service provision on a cost-recovery basis. Small-scale of population needs, operate without subsidies and are
operators have been in the water market for a long flexible. They are of particular use in peri-urban and
time, but mainly as informal, unregulated providers rural areas where networked service provision is limited
meant to fill a gap, notably by reaching the poor and and actions are localised. However, their activity needs
remote communities where bigger utilities do not to be better regulated, especially as regards water quality.
operate. For example, the Well Briefing note 33 on At the same time, the national institutional and
Private Sector Participation in Urban Water Supply37 regulatory frameworks should be made more flexible
shows that some 39 per cent of the population of Dar to facilitate their increased participation.
es Salaam and up to 50 per cent of the population of
Nairobi is supplied by small water enterprises. Bearing Besides contributing to service provision, local
all the risks and faced with little competition, they entrepreneurs are also instrumental in developing water
frequently charge high prices for their services. As such and sanitation-related activities: drilling, construction
policy makers largely saw them as problematic. Today, of latrines, emptying of latrines and in the provision
37. http://www.lboro.ac.uk/well/resources/Publications/Briefing%20Notes/BN33%20PSP.htm

Overview
Box 29 - Association of Private Water Operators in Uganda
APWO-Ug was established in 2003 with the support of GTZ(Gesellschaft für Technische Zusammenarbeit) (German technical
co-operation agtency). It has ten member companies managing 57 towns-of the 180 in Uganda. The key principles for water provision
are to use metering to reduce the unaccounted for water and ensure payment for the cost of service (93 per cent metering), customer
care and sensitisation, good maintenance of water supply systems (functionality at 93 per cent), effective utilisation of government grants
to extend water services (improved access by 0.5km), water quality testing and dosing (95 per cent of samples in conformity) and proper
record keeping and regular reporting (availability of national data for assessing coverage).
However, the sector faces some key issues:

- Lack of streamlined policy frameworks for private-sector engagement, e.g. de-gazetting of towns to the public sector, inadequate
compensation and uncertain business environment
- Non inclusion in key policy/legal documents such as the Water Act
- Restrictions on private-sector investment in water systems
- Tariffs set without consultation with private operators and non reflective of the reality on ground
- Sector governance, participation, accountability and transparency issues i.e. corruption
- Delayed payment of management fees resulting from low rates of investment by government, low tariffs, delayed payments by
government institutions
- Inadequate regulation mechanisms in the entire water and sanitation sector.
- Inadequate resource/capacity of the local authorities & DWD to facilitate performance monitoring for both private and public
sector
- Lack of representation on key water sector committees to create linkages to the sector mainstream
- Political influence and interference in day-to-day operational issues including bidding and contract procurement processes, debt
collection, water extension
- National power crisis (load shedding reducing hours of production by 304 hours/month on average)
80 - Lack of resources to facilitate planned activities like training, secretariat logistics
Source: Based on the intervention of Winifred Kalebu, Chairperson, Association of Private Water Operators, Uganda, at the OECD/AfDB
expert meeting on Access to Drinking Water and Sanitation, Paris, December 2006.
of the spare parts necessary to maintain existing facilities. at one point in time, it is important to take into account
They face the usual constraints of SMEs in Africa their longer term impact, such as the adverse effect on
(highlighted in the African Economic Outlook the management of utilities, and the difficulty of
2004/2005). Helping them access funding can take removing them once established. One-off subsidies
the form of local revolving funds and provision of such as support for connection have the advantage of
guarantees. avoiding a habit-forming effect, of key importance in
countries with a binding budget constraint. Beside a
• Conclusion: the need for a significant change in complete change in the tariff structure, there is a need
policies and practices for regular increases, notably to adjust for inflation. The
widely agreed principle here is to implement small but
Implementing cost recovery requires a radical change regular increases, as they are better understood if the
in management culture. It requires the establishment service is good enough. When indexation is not
of an independent regulator as well as the involvement followed, revenue falls behind costs with the result that
of the users (including the poor, the industries and maintenance is deferred and services deteriorate. It
government agencies) for all to buy into the new becomes then even harder to fully adjust the prices.
organisation. Indeed, changes in the tariffs structure
require a good partnership between governments and 2- The Role of Donors
utilities but also awareness campaigns since the
population very often resists the reforms. This is also Aid to water supply and sanitation is the only social
why, even if subsidises may be justified on social grounds sector where aid allocations fell in the 1990s, partly

Overview
because of a general decline in aid, partly because of 2004, followed by a slight decline in 2005 to levels
the sharp drop in aid for large dams and water storage that remain above the average of the 2000-03 period
schemes. However, the 2003 recommendations of the (see figure). Most of the increase in aid was due to
Camdessus panel to double financing for the water new commitments by multilaterals (IDA and EC)
sector to achieve the Millennium Development Goals whose allocation to the water and sanitation sector
on water and sanitation, helped to reverse this trend. in Africa rebounded from about 30 per cent in the
The share of African countries in total aid for water middle of the 1990s to 50 per cent in 2003-05.
increased again slightly in recent years. Nevertheless, Nevertheless the share of aid devoted to water and
it is difficult to predict the expected increases in ODA sanitation in Africa by the World Bank remains low:
for the water and sanitation sector since the donors do only $146 million allocated to water over 1990-
not make projections at sectoral level. 2005, representing some 6 per cent of the World
Bank portfolio of $23 billion.
The most recent data from the Development
Assistance Committee of the OECD show a sharp Conversely, the share of bilateral aid to water and
increase in the allocation of Official Development sanitation in Africa declined from 34 per cent in mid
Assistance (ODA) to water supply and sanitation in the 1990s to 22 per cent in 2003-05, reflecting the
Figure 12 - Total Water ODA to Africa, $ billion, 2004 prices,

commitments with 3 years moving average
Bilateral ODA Multilateral ODA
Bilateral Trend Multilateral Trend
.2 81
.0
0.8
0.6
0.4
0.2
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: DAC statistics, Creditor Reporting System

http://dx.doi.org/10.1787/263526661141
Figure 13 - Water ODA Commitments by Sub-sector 2005

Rivers / Waste / Education
Water resources policy
4%
20%
Basic drinking water s.& s. 32%
44%
Water s. & s. - large systems
Source: DAC statistics, CRS

http://dx.doi.org/10.1787/582267471277

Overview
weakness of new commitments compared to the large Despite a general trend towards greater
infrastructure projects carried out in the second half harmonisation and alignment on recipient country
of the 1990s. The trend in bilateral aid to the water priorities, reflected by a relative increase in Sector
sector is mainly set by the large donors and allocations Budget Support (SBS) and General Budget Support
are concentrated in a relatively few recipient countries. (GBS), the vast majority of foreign aid to water and
In 2004-05 Germany, Japan, Denmark, France and sanitation is spent on projects. Most donors consider
the Netherlands extended about three quarters of total that the large scale and technical complexity of water
bilateral aid to water supply and sanitation. Over the and sanitation civil engineering works may be more
same period, about three quarters of total aid was adequately managed as projects. The project approach
concentrated in 10 recipients, including Ghana, Nigeria, is also considered to support innovative approaches,
Tunisia, Kenya, Ethiopia, Benin, Morocco, South involving the private sector and civil society that are
Africa, Tanzania and Burkina Faso. not always well taken into account in government
programmes. In addition, some donors favour
In the water sector most aid is used to finance harmonisation of policies but not of financial
investments in infrastructure (figure). Projects are large mechanisms and procedures, each donor country
and on average take at least 8 years to be completed. preferring to retain its own rules. The limited adherence
In view of the capital-intensive nature of water projects, to SBS and GBS support in some countries reflects the
timely financial flows are crucial for planning and concern that these funding mechanisms are still at early
implementation purposes. Nevertheless, aid flows stages and require major improvement. Accordingly,
remain highly unpredictable. Late disbursements have some donors and recipient governments are working
strong negative consequences, leading to very low to improve planning and monitoring, and to agree on
82 execution rates, to accumulation of debt to contractors, the use of common reporting, auditing and procurement
and to temporary suspensions of work. In Mozambique, procedures. Water Sector Working Groups of donors
for instance, the water sector’s execution in the first half and government representatives have been set up in
of 2006 was only 17 per cent of planned investment many countries to improve national coordination,
expenditure reflecting late disbursements by treasury including Mozambique, Uganda and Zambia.
and by the funding agencies. The challenge for donors
is to work towards longer-term, stable funding to enable While the trend of ODA for to the water sector
better planning and implementation. In tandem, to be increasingly given in the form of grants is to
governments could put in place a special national or be welcomed (58 per cent in 2004-05 compared to
international facility to pre-finance disbursements 36 per cent in the mid 1990s), it is crucial that aid
budgeted for a later period. does not crowd out local initiatives or discourage
Box 30 - A Trust Fund to Improve Service Provision in Peri-urban Areas in Zambia
The Devolution Trust Fund, instituted under the National Water Supply and Sanitation Council (NWASCO), has been financing
projects on a pilot scale for commercial utilities to improve water supply since 2003. Funds are provided to commercial utilities to extend
their services to the peri-urban poor. A total of about 120 000 people in low-income areas have since benefited in terms of safe and
adequate water supply. During the pilot phase, detailed procedures and guidelines were developed to make DTF operations more
transparent and accountable. The establishment of the DTF as a basket fund targeting peri-urban and low cost areas has been lauded as
the most significant initiative the government has taken to extend water supply and sanitation services to these areas. Consequently a
number of co-operating partners have made financial commitments to support the government achieve this objective. As at end 2006,
about 8.8 million euro had been mobilised by the DTF from the German banking group KfW (Kreditanstalt für Wiederaufbau), the
Danish International Development Agency (DANIDA), and the EU for financing implementation of WSS projects. In the future, there
are plans to broaden the DTF mandate to water treatment investment. Nevertheless, the limit of the DTF is that it is not aligned to the
decentralisation process.

Overview
water authorities from becoming financially self- private firms, but also public utilities, NGOs, and
sustaining. Thus, ODA funds should be used to community-based organisations, under contracts that
mobilise other flows, such as user charges, other local tie disbursement of the public funding to the services
revenues, bank loans and private capital, and to or outputs actually delivered. OBA in the water sector
empower other stakeholders in line with the national can be used in the form of subsidies to reimburse water
water strategy. For example, in Zambia aid is bills of low–income consumers, or to expand water
channelled through a the Devolution Trust Fund and sewer networks, in cases in which disbursements
which assists the nine commercial water utilities in are tied to the number of new connections.
urban areas to extend the provision of water and
sanitation services to the peri-urban poor. Many countries are adopting the OBA funding
mechanism. For example, in Mozambique, the Global
Another means through which aid could be used Partnership on Output-Based Aid (GPOBA), a multi-
to mobilise other financial flows is to provide subsidies donor trust fund administered by the World Bank,
targeted on performance, such as Output-Based Aid has recently launched a project to provide subsidised
(OBA). OBA is a strategy for using explicit performance- water connections for domestic consumers in five
based subsidies to support the delivery of basic services cities that currently utilise PPP contracts. The aim of
where policy concerns would justify public funding to the GPOBA-funded project is to increase access to
complement or replace user-fees. OBA involves water services for poor households through further
delegating service delivery to a third-party, typically public-private partnerships.
Box 31 - Mozambique Water Private Sector Contracts –

OBA for Coverage Expansion 83
The GPOBA project is to provide subsidised water connections for domestic consumers in Maputo, Beira, Nampula, Quelimane,
and Pemba. This will facilitate access for low- to –middle-income households that currently have no access to piped water. The World
Bank-financed National Water Development Project II (NWDP II) began implementation in 2000 and concentrated on large investments
to increase the capacity of several water systems. These investments have secured a sufficient supply of potable water to dramatically
increase service coverage. However, the high cost of an individual household connection is a major barrier for low- and middle-income
households. Thus, GPOBA will contribute towards subsidising around 36,300 new connections, equivalent to an increase in the number
of households gaining access to piped water by 23 per cent in Maputo, 31 per cent in Beira, 100 per cent in Quelimane, 46 per cent in
Nampula, and 100 per cent in Pemba.
Source: Global Partnership on Output-Based Aid, World Bank
3- Developing Innovative Financial Tools raise adequate funding. Raising taxes remains very
often the task of central government. Some larger cities
There is potentially great scope to tap domestic may have the capacity to raise bonds, such as the city
and international financial markets by issuing long-term of Johannesburg that launched in 2004 the first non-
bonds and shares in equity. The decentralisation process sovereign guaranteed loan in Sub-Saharan Africa.
has raised the issue of long-term local currency financing However, the central power remains in many cases
for sub-sovereign entities38 and the issue of reluctant to provide the corresponding guarantee as it
creditworthiness of utilities that could help generate constitutes a liability on the budget and local capacities
funds. However, while devolution of the responsibility are usually deemed weak. Moreover, the scale of the
for service delivery has been proceeding, few sub- required funding very often exceeds the capacity of
sovereign entities have been given the tools needed to local financial markets. Furthermore, there are
38. See: Winpenny, J. 2005, Guaranteeing Development? The Impact of Financial Guarantees OECD Development Centre, Paris.

Overview
Box 32 - Decentralised Financing in Mali
There is little decentralised funding available in Mali, except for money from NGOs and local community groups. National water
department (DNH) projects are internationally funded. In the Kayes region, Malians living in Europe often invest heavily in water supplies
for their home village. Communities can also get money from the national agency for local investment, (Agence Nationale d'Investissement
des Collectivités Territoriales – ANICT), which earmarks about 10 per cent of its funds for water and sanitation projects, but with conditions
that prevent borrowers from buying more than hand-pumps and large diameter wells.
Box 33 - Responding to the Calls of the Camdessus and Gurría Panels:

a Selection of Financing Schemes for the Water and Sanitation Sector in Africa
IFC Partial Credit Guarantee
The IFC partial credit guarantee is a credit enhancement mechanism for bonds and loans. IFC uses its triple-A credit rating to allow
borrowers to access the financial market and extend debt maturity. The IFC guarantee covers creditors irrespective of the cause of default.
Partial guarantees can be either in local currency (for domestic transactions) or foreign currency (for cross-border transactions). The outstanding
example in Africa of provision of such a guarantee is the issue of bonds by the city of Johannesburg in 2004.
See: www.ifc.org/structuredfinance
The World Bank Multilateral Investment Guarantee Agency (MIGA)
MIGA is a multilateral risk mitigator, promoting foreign direct investment into developing countries by ensuring investors against
political or non-commercial risks, mediating disputes between investors and governments, advising governments on attracting investment
84
and sharing information through online investment information services. The main users are cross-border investors, but nationals and
state-owned corporations operated on commercial basis are also eligible. MIGA action in the water and sanitation sector remains however
limited and is almost non-existent in Africa. In 2005, however, MIGA issued four guarantees to Urbaser S.A. for its concession agreement
with the Municipality of Cairo to contribute to the modernisation of Cairo’s waste management sector.
See: www.miga.org
The Public-Private Infrastructure Advisory Facility (PPIAF)
PPIAF is a multi-donor technical assistance facility that aims to improve the quality of infrastructure through public-private
partnerships. It was launched in 1999, is supported by 15 development agencies and managed by the World Bank. It finances advisory
activities, including the design of policy, regulatory and institutional reforms. In 2006, 14 per cent of PPIAF funding to SSA was
allocated to water and sanitation. See: www.ppiaf.org
EU Water Facility
In 2004, the European Commission created an ACP-EU Water Facility using €500 million from the 9th EDF, to be allocated in
two tranches via competitive calls for proposal. A first Call to allocate €180 million was launched in late 2004. By January 2005, the
EC had received 800 preliminary proposals requesting grant financing for €2.75 billion. The demand by far surpassed expectations and
€50 million were anticipated from the second tranche, for a total available amount of €230 million. Together, the first and second calls
for proposals of the Water Facility resulted in the selection of 175 proposals, from over 1300 submitted, for a total EC contribution of
€420 million, leveraging an additional €360 million. The ACP-EU Water Facility is not designed to finance large water infrastructure
projects. It is a fund that creates the conditions to attract funding from sources other than public development assistance and brings
funding directly to the local level. Evaluation of the Facility is planned for 2007. Among the key themes for the evaluation will be to
find ways to increase coherence with Country Strategies, to identify modalities for increasing the leverage of new resources, including a
higher participation of the private sector.
sometimes (legal) restrictions on borrowing by sub- statements, conduct auditing and oversight. Finally,
sovereign bodies, also on MFI funding. Sub-sovereign the fiscal relationship between central government and
bodies also very often lack capacity to produce financial sub-sovereign bodies is not always clearly defined and

Overview
Box 33 - Responding to the Calls of the Camdessus and Gurría Panels:

a Selection of Financing Schemes for the Water and Sanitation Sector in Africa
(cont.)
EIB
The EIB manages the Cotonou Investment Facility. The 2003 ACP-EU Cotonou Convention provided the EIB with new financial
instruments allowing i) a higher level of risk-taking by the Bank to support the private sector, including the use of equity, quasi-equity,
and guarantees, and ii) elements of concessionality in projects supporting reforms and eradicating poverty. After amendments, both the
Investment Facility and own resources can be used for infrastructure financing with interest subsidies of up to 3 per cent. In 2006, the
EIB-ACP Project Preparation Facility was created to provide technical assistance in tandem with the EUWI.
See: www.eib.org
The Private Infrastructure Development Group Umbrella (PIDG)
- Emerging Africa Infrastructure Fund (EAIF): EAIF was launched in 2002 to provide long-term debt to pro-poor private sector
funded infrastructure service projects in sub-Saharan Africa in the energy, telecommunications, transport and water sectors. It is
supported by DFID, SIDA, DGIS and SECO.
- GuarantCo: provides guarantees to enhance credit, notably of municipal bonds. Many infrastructure projects, particularly at the
sub-sovereign level, derive most of their revenues in local currency, making hard-currency debt funding inappropriate. In 2004
the PIDG launched GuarantCo, which is designed to mitigate risks for local currency financing of infrastructure. It is supported
by DFID and SIDA.
- In 2003 PIDG established a local capacity Technical Assistance Facility (TAF) to assist in the building of local capacity and
capability associated with private sector investment in infrastructure. Technical assistance is provided to both the public and private
sectors in support of the planning and implementation of projects and programmes of any of the facilities or funds undertaken
under the PIDG umbrella with funding support from the World Bank. 85
See: www.pidg.org
Cities Alliance
Cities Alliance is an alliance of cities and their development partners to improve living conditions of the urban poor. It was launched
by the World Bank and UN-Habitat in 1999. It operates the Community Water and Sanitation Facility (CWSF), which targets NGOs,
local governments, private sector, CBOs. See: www.citiesalliance.org
CLIFF (Community-Led Infrastructure Finance Facility) Guarantee Facility
This is co-ordinated by Homeless International with funds from DFID and Sida. It provides venture capital and other financial
products directly to urban poor organisations to support slum upgrading. It began operations in India in 2002 and started operating in
Kenya in 2005, where it supports Muungano Wa Wanavijiji.
The NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF)
NEPAD-IPPF was established in 2003 with seed funding from the Canadian Government and transformed in 2005 into a multi-
donor facility. The key objective of the NEPAD-IPPF is to assist African countries, Regional Economic Communities (RECs) and related
infrastructure development institutions, to prepare high quality, viable regional infrastructure projects in energy, trans-boundary water
resource management, transport, and ICTs, which would be ready to solicit financing from public and private sources.
more than often fails to ensure continuous and of principal outstanding) that helped enhance the credit
sustainable funding. rating to AA-, allowing the participation of pension
funds, and extended the final maturity to 12 years.
The case of Johannesburg in 2004 however shows That initial guarantee helped create confidence in the
how a successful loan can help build up investors’ local market so that in 2005 Johannesburg was able to
confidence. In this specific case, the R1 billion operation issue another R700 million bond with a maturity of 8
was carried out with the support of DBSA and IFC in years without credit enhancement. In both instances,
the form of a partial credit guarantee (for 40 per cent the bond issues were largely oversubscribed.

Overview
The international community is responding to the avoids the currency risk associated with raising finance
calls of the Camdessus and the Gurría panels to develop in international capital markets.
and adapt financial instruments to improve funding for
the water and sanitation sector. For example, the World Pooling mechanisms are also emerging that help
Bank is developing a sub-sovereign financing facility to leverage funds and mitigate risk. In South Africa,
in local currency. The AFD provides guarantees to INCA (Infrastructure Finance Corporation Limited),
West African local issuers through the WAEMU regional a private fund, uses its AA credit rating and recognised
bond market that mitigates exchange-rate risk. However, diversified portfolio to borrow from capital markets
sub-sovereign lending will continue to depend on the and extend long-term fixed interest rate loans to
capacity of sub-sovereign actors to develop sound infrastructure providers such as municipalities and
accounting systems, transparent management and the water boards. Pooling of resources is also usually
ability to develop sound, bankable projects. In parallel, combined with pooling of expertise by involving
local financial markets need to be strengthened. The NGOs, local business and government. There is great
potential role of domestic banks in financing the water potential in such mechanisms to support the
sector is increasingly recognised since domestic financing development of rural water and sanitation. More and
Box 34 - The AfDB Water Facility
86 The African Water Facility (AWF) is an initiative led by AMCOW, aimed at addressing the funding gap. Established within the
context of the Africa Water Vision as well as the MDGs, the AWF is hosted by the African Development Bank (AfDB) at the request of
AMCOW. The AfDB Board of Governors approved the Instrument establishing the AWF in 2004. The establishment activities took
place in 2005 and operations started in 2006. The amount so far committed for the AWF is around €60 million, from Canada, France,
Denmark, Norway, Sweden, Austria and EU. The main objective is to create an enabling environment to attract more resources into the
water sector: focusing on policies, strategies, information system, monitoring and evaluation, knowledge sharing, and project preparation.
After one year of operations, a total of 14 projects were approved in 2006, at a total budgeted cost of €9 million. Out of the 14
approved projects, three are related to the implementation of national IWRM policies; five projects focus on the implementation of trans-
boundary water resources management initiatives and programmes; three projects concern preparation of programmes/projects in water
supply and sanitation, which will lead to immediate sector investments. The remaining three projects are small capital investments designed
to attract additional resources or to introduce innovative technologies.
The key challenge is to accelerate the implementation of the approved projects and demonstrate the effectiveness and the value added
of the Facility. The Facility is facing a rapidly increasing demand. As a result of the limited number of staff and the amount of funding,
viable projects could not be considered. To mitigate the capacity challenge, the AWF will continue to depend mostly on the secondment
pledges by member countries. The AWF has also developed a resource strategy paper to facilitate mobilising more resources.
Looking Ahead, the AWF priorities are threefold:
- Portfolio Building and Consolidation: The AWF will continue to implement quality portfolios through the preparation of viable
projects and build the pipeline for future investments to ensure efficient processing and management of operational activities;
- Building Partnerships: The AWF will continue to raise awareness and build synergy through creating partnerships, especially among
Water Basin Organisations, and organisations with similar objectives;
- Mobilising Additional Resources: The AWF will support activities that create an environment conducive to higher levels of investments
from all sources, including, commercial finance, in concert with other partners. This will be done through supporting policy and
regulatory environments that promote Private Sector Participation, beneficiary user fees and internal capital generation for
investment in the water sector.
Source: AfDB Water and Sanitation Department

Overview
more, governments are developing comprehensive 2005 at the Paris Conference to take the leadership in
rural sub-sector strategies in order to strengthen the the financing – and in the mobilisation of resources –
institutional framework, to strengthen planning and of the water and sanitation sector in Africa, especially
ultimately to catalyse funds and harmonise the different in rural areas. The AfDB has consequently engaged in
actors efforts (local population, NGOs, donors, local very diverse activities to support the water and sanitation
administrations and business). sector: from direct investment in water storage facilities,
to support to utilities and financial intermediaries via
Development Banks have an important role to play technical assistance. It has also developed two specific
as intermediaries between foreign lenders, central initiatives to support increased financing to the sector:
governments and sub-sovereign entities. As such an the African Water Facility and the Rural Water Supply
example, the AfDB was given the responsibility in and Sanitation Initiative.
Box 35 - The AfDB Rural Water Supply and Sanitation Initiative (RWSSI)
The RWSSI was conceived in 2002 as one of the Bank’s responses to the challenge of the MDGs in Africa. The objective of RWSSI
is to accelerate access to water supply and sanitation services in rural Africa to attain 80 per cent by 2015 and extend water supply and
sanitation services to 277 million and 295 million people respectively at a cost of $14.2 billion over 3 phases. The first phase (2004-07)
is estimated to cost $4.6 billion; the second phase (2008-10) $4.2 billion; and the third phase (2011-15) $5.4 billion. The Bank is committed
to financing 30 per cent of the needs and is encouraging other stakeholders to contribute the rest as follows: 50 per cent by multilateral
and bilateral donors; 15 per cent by governments; and 5 per cent by beneficiary communities. 87
The RWSSI strategy involves: raising awareness about the RWSS situation in Africa; mobilizing resources from donors, RMCs, NGOs
and communities; adopting Fast Track Mechanisms for preparation and implementation of national programmes; adopting a demand–driven,
programmatic approach; prioritising sanitation focusing on hygiene promotion and health education; ensuring beneficiary participation,
especially of women, in the design and implementation of programmes; assuring Sustainability through promotion of appropriate
technology.
The Bank has made significant achievements since it started supporting RWSS programmes in 2003. The Bank has so far approved
financing for 14 RWSS programmes for which it has provided financing of $536 million, and expects to approve five more by end 2007
and increase its funding to $803 million. These programmes are expected to extend services to 32.5 million people by 2010. A 43 per
cent increase of ADF resources permitted a 5-fold increase in Bank’s annual lending for water supply and sanitation from less than $70 million
prior to 2003 to about $330 million currently. Many donors like France, the Netherlands, the United Kingdom and Denmark and some
African Governments have increased their water sector financing. Additional financing is available through a multi-donor RWSSI Trust
Fund established by France, Denmark and the Netherlands at the Bank with contributions of €90 million. In Addition, RWSSI continues
to raise awareness of the poor state of RWSS in Africa and the links to the health, education, gender, and poverty MDGs. The establishment
of the first time within the Bank of a Department dedicated water and sanitation has allowed better co-ordination of the water initiatives
and more efficient use of resources.
Some of the key challenges include: maintaining the trend of increasing water-sector financing by the Bank, donors and African
governments; improving staffing at the Bank’s headquarters and Field Offices, improving the Bank’s Business processes; according
sanitation higher priority; building local government, community, local-contractor, artisan and consultant capacity; establishing reliable
supply chains; improving monitoring and evaluation systems.
Source: AfDB Water and Sanitation Department.

.
Part Two
.
Algeria
Algiers
key figures
• Land area, thousands of km2 2 382
• Population, thousands (2006) 33 354
• GDP per capita, $ PPP valuation (2006) 7 160
• Life expectancy (2006) 72
• Illiteracy rate (2006) 30.1
Algeria
R ECORD OIL PRICES IN 2005 led to considerable nevertheless represents a slowdown in growth. These
improvement in Algeria’s external balance, despite figures show the heavy dependence of growth on oil
significant growth in imports of goods and services. and gas, due to their major
The complementary
However, public finances and monetary policy remained contribution to GDP.
programme of sustainable
cautious. The reference price used in drafting finance
growth (PCSC) 2005-09
acts is still $19 per barrel and inflation remained under 2005 marked the beginning of
could accelerate economic
control in a context of budgetary expansion and the Complementary Programme
growth.
increased foreign exchange reserves. The overall growth for Growth Support (PCSC). This
rate increased from 5.2 per cent in 2004 to 5.3 per cent ambitious programme for 2005-09 continues the efforts
in 2005, which is a drop of 1.6 percentage-points of the Economic Recovery Programme (PSRE) from
compared with 2003. Estimates for 2006 show a 2001-04. The PCSC has a total budget of $55 billion,
slowdown to approximately 3 per cent. This clear drop plus approximately $14 billion for development of the
is the result of a decrease in oil and gas production due High Plains and the far South. Budgetary policy efforts
to technical problems. The IMF has estimated a growth are aimed at maintaining economic growth, which has
rate excluding oil and gas of 4.5 per cent, which been significant in recent years, by equipping the
93
Figure 1 - Real GDP Growth and Per Capita GDP

($ PPP at current prices)
Source: IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/454755182784

Algeria
country with appropriate infrastructures, in order to in 2004. Oil and gas also made an increased contribution
improve the business climate and encourage the private to growth in 2005, when it accounted for 43.13 per
sector to contribute more to boosting growth. cent, as against only 25 per cent in 2004. Overall
sectoral growth was 5.8 per cent in 2005, while GDP
These positive macroeconomic results have grew by 5.3 per cent. Crude-oil production grew by
nevertheless failed to have a positive and lasting around 5.4 per cent in 2005, mainly due to an expansion
influence on the economy, notably through generation in production of Sonatrach’s associates, whose
of substantial industrial growth or export diversification. production grew by 10.4 per cent in 2005, due to
Growth is still mainly led by services, oil and gas, increased foreign investment in the sector. Oil
posing the problem of long-term sustainability. production nevertheless fell slightly in 2006 because
Although the private sector concentrated essentially on of technical problems. The export-share of crude oil
gross capital formation up to 2005, it has not succeeded continued to rise, at the expense of gas and oil by-
in creating a viable alternative to growth that is less products, growing from 22 per cent in 2001 to 42 per
dependent on oil and gas. The private sector has cent in 2005. Overall gas production by volume
invested in the non-tradable goods sector (services remained stable.
and construction) in order to benefit from the demand
created by budgetary efforts and to avoid increasingly The contribution of agriculture to GDP fell again
acute foreign competition due to greater opening-up in 2005 to 7.7 per cent, as against 8.3 per cent in
of the country’s economy (partnership agreement with 2004 and 10 per cent in 2003. This was due to the
the European Union [EU], future membership of the growing contribution of oil and gas to GDP and to
World Trade Organization [WTO] and regional the weak growth of the sector. Agriculture is very
94 integration agreements). Because of the structure of much influenced by variations in rainfall and grew
the private sector (97 per cent of firms employ less than only by 1.9 per cent in 2005, as against 3.1 per cent
ten workers), it will probably resort to shielding itself in 2004 and 19.7 per cent in 2003. Cereal production,
even more in these sectors and also in the informal which is very dependent on rainfall, fell from
economy, in order to avoid having to face the 42.6 million quintals in 2004 to 35 million quintals
uncertainties created by the opening-up of the economy. in 2005. However, production of fresh fruit and
Ambitious present and future public programmes vegetables remained good, due to the effects of the
might reinforce this tendency. The state will in fact support programmes linked to the National Plan for
become - and remain - the biggest investor throughout Agricultural Development (PNDA).
the entire term of the PCSC.
The construction sector accounted for 7.5 per cent
of GDP in 2005. This sector has received special
Recent Economic Developments attention from the public authorities because of the lack
of housing and basic infrastructures. The construction
Oil and gas continue to make a major contribution sector has grown remarkably over the past several years.
to economic growth and macroeconomic developments In 2005, growth was 7.9 per cent, 0.4 percentage-
generally. The power of this influence is due to two points higher than in 2004. This sector receives
factors; growth in the oil and gas sector itself (given its considerable support from expenditure on capital
share of GDP) and taxation on oil and gas (more than equipment, which increased by 31 per cent in 2005.
75 per cent of budget receipts in 2006), which finances In 2005, 104 905 housing units were delivered, as
the big public programmes that lead to growth in against 81 175 housing units in 2004. Basic
services and construction. infrastructures and housing will be allocated almost
half of the total budget of the Complementary
The contribution of oil and gas to GDP increased Programme for Growth Support (PCSC 2005-09),
further in 2005 to 45 per cent, as against 38 per cent originally set at 4 202 billion dinars, but since then,

Algeria
Figure 2 - GDP by Sector in 2005 (percentage)
Source: Authors’ estimates based on IMF data.

http://dx.doi.org/10.1787/511175266572
this sum has been multiplied by three. One million of tourists would exceed 10 000 and that this would
housing units are planned under this Programme. generate foreign currency revenue of $200 million, or
Investments in large infrastructures will enable a the equivalent of 25 per cent of exports of goods
significant proportion of unemployed manpower to excluding oil and gas.
be absorbed, at least temporarily.
Agriculture and industry excluding oil and gas
The services sector, having suffered a relative decline (which now accounts for only 5.3 per cent of GDP),
with 34 per cent of GDP in 2005, as against 39 per are the sectors that have contributed least to overall
cent in 2004, grew by 5.6 per cent; this represented a growth. GDP excluding oil and gas grew 4.8 per cent
fall of 2 per cent compared with 2004, but was higher in 2006, while the agricultural sector increased by 95
than the overall growth rate. Because of its important 4.9 per cent, with a cereals harvest of 40 million tonnes.
contribution to GDP, it accounted for almost 24 per
cent of total economic growth, and employed more than Industry excluding oil and gas nevertheless showed
53 per cent of the total employed population. Value- improved growth of 2.5 per cent at the end of 2005,
added in this sector was mainly contributed (85 per cent) as against 1.9 per cent in 2004. The public sector grew
by transport/communications and trade/distribution 3.4 per cent, compared with 1.7 per cent for the private
activities. Tourism has shown signs of recovery, especially sector. Manufacturing industry activities remain
in the Sahara. In 2006, it was expected that the number stagnant, with growth of only 0.2 per cent in 2005.
Table 1 - Demand Composition (percentage of GDP)

1998 2005 2006(e) 2007(p) 2008(p)
Percentage of GDP Percentage changes, volume

(current prices)
Gross capital formation 28.8 30.0 6.0 8.7 9.3

Public 7.5 9.6 8.0 10.0 12.0
Private 21.3 20.4 5.0 8.0 8.0
Consumption 72.8 45.4 3.4 3.9 4.0

Public 17.8 11.8 4.3 2.7 2.7
Private 55.0 33.6 3.2 4.1 4.3
External sector -1.6 24.5

Exports 22.5 48.0 1.6 4.1 3.7
Imports -24.1 -23.5 5.7 4.5 5.9
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Within this sector, however, the growth performance revenue contributed 76.3 per cent of budget receipts,
of the private sector (2.3 per cent) is nevertheless as against 70.4 per cent in 2004. Oil prices are the main
significantly better than that of the public sector, where reason for this revenue structure. Prices reached a
activity has declined (-4.5 per cent). record high in 2005: after increasing from an average
of $28.9 per barrel in 2003 to $38.6 in 2004, they
Demand composition reflects the sustained effort reached $54.4 in 2005. Nevertheless, like other oil-
of accumulation, with investment rates of almost 30 per rich countries, Algeria suffers from structural
cent over several consecutive years. In 2005, with the deficiencies as regards ordinary taxation, especially
increase in stocks, 30 per cent of GDP was allocated income tax. This reflects the complexity of a taxation
to investment. Nevertheless, investment remains system that leads to tax avoidance, development of the
insufficient in proportion to the savings supply, which informal economy and deteriorating financial situations
exceeds 45 per cent of GDP. The savings rate reached for a large number of public enterprises. Although
54 per cent in 2005. Private investment remains sluggish ordinary revenue increased by over 10 per cent, its
because of a discouraging business climate (problems relative budget share went down from 29.3 per cent
with industrial land, banking finance, corruption, etc.) in 2004 to only 23.5 per cent in 2005. Income tax
The investment rate is expected to reach over 50 per represented only approximately 2.5 per cent, largely
cent in 2006 and probably also in 2007, in view of the due to salaried income more than other types of
efforts that need to be made in capital equipment income. Tax exemptions aimed at promoting national
within the framework of the PCSC. Although total and foreign investment run the risk of increasing the
consumption increased by almost 7 per cent in 2005 importance of oil taxation in the short and medium-
compared with 2004, it fell by 7 percentage-points of terms. Almost 55 per cent of current government
96 GDP in 2005. operating costs depend on oil and gas taxation – in other
words, ordinary taxation covers only 45 per cent of
Macroeconomic Policy operating costs.
Fiscal Policy Although oil prices have tended to rise continually,

government espenditures have been planned since
Government revenue amounted to 3 082 billion 2000 (except for 2002) on the basis of a reference
dinars in 2005 and the predominant source of revenue price of $19 per barrel. The surplus revenue generated
continued to be oil and gas taxation. In 2005, this with reference to this price is added to a Revenue
Table 2 - Public Finances (percentage of GDP)

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Total revenue and grantsa 27.4 37.0 36.2 41.0 41.7 40.1 39.6
Tax revenue 11.3 9.6 9.2 8.4 8.1 8.3 8.4
Oil revenue 15.4 26.0 26.0 31.9 32.8 31.1 30.5
Total expenditure and net lendinga 31.2 29.2 29.3 29.1 28.7 29.4 29.8
Current expenditure 23.7 21.1 21.4 19.5 19.1 18.9 18.4
Excluding interest 19.8 18.9 20.0 18.5 18.0 18.0 17.7
Wages and salaries 9.5 7.6 7.3 6.2 5.9 5.9 5.6
Interest 3.9 2.2 1.4 1.0 1.1 0.9 0.7
Capital expenditure 7.5 8.1 7.9 9.6 9.6 10.5 11.4
Primary balance 0.1 10.0 8.2 12.8 14.1 11.6 10.5

Overall balance -3.8 7.8 6.9 11.9 13.0 10.7 9.7
a. Only major items are reported.
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Regulation Fund (FRR), which has received a total of as against 16 per cent realised in 2005. In 2006, the
3 046 billion dinars since 2002, or slightly more than budget deficit (admittedly excluding the Revenue
$42 billion, 45 per cent of which was added in 2005 Regulation Fund) is expected to reach 1 908.7 billion
alone. To pay off the public debt, 1 118 billion dinars dinars, 7.4 times higher than that of 2005.
($15.5 billion) were withdrawn from this Fund.
Budgetary policy will remain sustainable in the short This 2006 budget deficit corresponds to 32 per
and medium-terms thanks to global economic growth, cent of GDP, as against 3.5 per cent in 2005. However,
which promises to maintain oil prices at a relatively assuming stability in oil prices and taking all oil revenue
high level in comparison with the average price seen into account, the deficit for 2006 (under the
during the preceding decade. complementary finance act) is expected to correspond
to 17 per cent of GDP. In order to finance the budget
Budget expenditure increased by almost 5 per cent deficit, the government will draw on the Revenue
in 2005 and amounted to 1 971 billion dinars. Regulation Fund (FRR). This Fund was originally
Operating expenditure rose by 3.3 per cent, while intended for use only to pay off the principal portion
capital expenditure grew by 8.3 per cent. Expenditure of the public debt and to finance a budget deficit caused
on capital equipment is expected to take a predominant by a price per barrel lower than the $19 reference price.
place in budget expenditure in the medium-term, due The finance act for 2006 removed this stipulation by
to the Complementary Programme for Growth Support authorising recourse to this Fund, although only up to
(PCSC) which foresees capital equipment expenditure a limit that safeguards funds from falling below a
amounting to 4 202.75 billion dinars over the period minimum level of $10 billion.
2005-09. Almost 45 per cent of the total budget will
be allocated to expenditure on socio-educational Monetary Policy 97
infrastructure (housing, education, health and regional
development); 40.5 per cent will go towards basic Since 2002, the Bank of Algeria has conducted an
infrastructure (transport, public works, water) and active policy aimed at solving the problem of excess
almost 8 per cent will provide support for agriculture. liquidity, which is mainly due to the increase in foreign
The budget for 2005 showed a surplus of 13 per cent exchange reserves. In its 2005 report, the Bank of
if total revenue is taken into account but a deficit of Algeria acknowledges the fact that the banks are
3.5 per cent if only revenue budgeted on the basis of reporting intermediation ratios that are much lower than
a reference oil price of $19 per barrel is counted. those authorised by prudential rules, taking into account
the stability of their resources. In order to control
The cautious attitude towards budgetary overall liquidity, the Bank of Algeria opted to regulate
management hitherto adopted by the government the compulsory reserve ratio and absorb excess liquidity
relaxed somewhat in 2006 and record public directly. The compulsory reserve ratio rose from a level
expenditure is expected as a result of the capital of 4.25 per cent in December 2001 to 6.25 per cent,
equipment programmes planned for the period 2005- then to 6.5 per cent in March 2004, where it has since
09. The finance act for 2006 authorised budget remained unchanged. The rates of interest associated
expenditure at 45.9 per cent of GDP, but the with these two instruments were revised in 2005: the
complementary finance act of the same year raised interest on compulsory reserves has been 1 per cent since
this figure to 62 per cent. Budgetary expansion mainly 2005, whereas before it was 1.25 per cent. During the
concerns capital expenditure and, to a lesser extent, second half of 2005, the Bank of Algeria introduced
operating expenditure. According to the two new indirect instruments: the “quarterly withdrawal
complementary finance act for 2006, capital of liquidities” at a rate of 1.9 per cent and the
expenditure is authorised to reach 38 per cent of GDP, “remunerated deposit facility” at a rate of 0.3 per cent.
as against only 10 per cent in 2005. Operating The first rate was raised to 2 per cent in 2006. These
expenditure is set at 23.9 per cent of GDP for 2006, different mechanisms have resulted in an increase in

Algeria
deposits by banks at the Bank of Algeria from 361 billion of 2003 is taken as a reference for this. The nominal
dinars in 2003 to 673 billion dinars in 2004 and rate of the dinar rose slightly against the dollar during
732 billion dinars in 2005. Of these total deposits, the second half of 2006, to 73.16 dinars for $1,
250 billion dinars in 2003, 400 billion dinars in 2004 compared to 73.84 dinars in 2005.
and 450 billion dinars in 2005 related to the withdrawal
of liquidity. Monetary Policy
By means of these different instruments, the Bank The price of oil per barrel, which rose from an
of Algeria has succeeded in stabilising the monetary average of $38.66 in 2004 to $54.36 in 2005, further
situation. The broad money supply (M2) grew by strengthened Algeria’s external position. At the end of
10.9 per cent in 2005, as against 11.3 per cent in 2004 2005, thanks to the trade balance, the current account
and 15.3 per cent in 2003. The inflationary trend in showed a positive balance of 21 per cent of GDP, as
2004 (3.5 per cent) has been reabsorbed and inflation against 13 per cent in 2004. Exports (f.o.b.) in fact
was only 1.6 per cent in 2005, proof of the effectiveness increased by 50 per cent by value in 2005 compared
of indirect monetary policy instruments. In June 2006, with 2004, while imports (f.o.b.) increased by only 9 per
the consumer price index had only increased by 0.6 per cent in 2005, compared with 34 per cent in 2004.
cent during the first half of the year. Imports have dropped by 2 per cent of GDP, reaching
the same level as in 2003. In real terms, imports
The Bank of Algeria will nevertheless probably need followed a trend similar to that of GDP. The overall
to adopt an attitude of greater prudence because of the trade balance showed a surplus of 26.1 per cent of
salary increases which came into effect during the second GDP. The balance of services as a percentage of GDP
98 half of 2006. As regards money creation, the increase remained fairly stable. Notably, however, the total of
in foreign exchange reserves has had an expulsion effect transfers of profits and dividends rose from $3.3 billion
on other money supply counterparts. Net external assets, in 2004 to $5.35 billion in 2005, $4.74 billion of
which have become the only source of money creation, which were for Sonatrach’s associates. At the end of
amounted to 4 179.4 billion dinars in 2005, as against June 2006, the transfers of these associates had reached
3 119.2 billion dinars in 2004, representing an increase $2.8 billion. These transfers have an important effect
of 40 per cent. At the same time, the monetary growth on the current account balance. Table 3 shows a
rate was only 10.9 per cent, for a money supply that widening deficit in factor income, despite much lower
totalled 4 149.9 billion dinars in 2005. interest payments on the debt, following payment of
almost the totality of the debt in advance and substantial
Monetary stability has been accompanied by a receipts from investments of foreign exchange reserves.
policy of “controlled floating” of the dinar aimed at
stabilising the Real Exchange Rate (RER) at its long- The structure of foreign trade has remained
term equilibrium level. The level of the RER at the end unchanged. In 2005, oil and gas exports made up more
Table 3 - Current Account (percentage of GDP)

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 3.1 16.3 16.8 25.7 28.9 26.1 24.8

Exports of goods (f.o.b.) 21.0 36.0 37.9 45.1 47.5 45.7 44.9
Imports of goods (f.o.b.) 17.9 19.6 21.1 19.4 18.6 19.6 20.1
Services -3.1 -2.0 -2.4 -2.8 -2.5 -2.3 -2.7
Factor income -4.2 -4.0 -4.2 -5.0 -4.4 -5.7 -5.3
Current transfers 2.2 2.6 2.9 2.7 2.4 2.3 2.3
Current account balance -1.9 13.0 13.1 20.7 24.4 20.4 19.1
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Algeria
Figure 3 - Stock of Total External Debt (percentage of GDP)

and Debt Service (percentage of exports of goods and services)
Source: IMF. 99
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than 97 per cent of total exports and over 50 per cent sustainable economic growth. The justice and finance
of remaining exports were by-products of oil and gas. sectors are the most important constraints on the
Imports show the importance of capital goods and improvement of the business climate.
intermediate goods (49.2 per cent), as well as of food
and non-food consumer goods (36.4 per cent). Algeria’s In this respect, a World Bank study ranked Algeria
principal trade partner is the European Union (57 per between ninth and last in a group of 14 oil-exporting
cent), supplying 58 per cent of its exports and 56 per countries belonging to the Middle East and North
cent of its imports. France remained Algeria’s principal Africa (MENA) countries or to Central and Eastern
supplier, with 21 per cent, followed by Italy and China, European Countries (CEEC). The analysis was based
with 9 per cent and 7 per cent, respectively. Over the on six weighted criteria (responsibility, political stability,
last ten years, foreign trade has tended to develop more governance, fairness of the legal system, the role of law
rapidly with regions outside the EU: imports of Chinese and corruption). The criteria that received most criticism
goods grew by 45 per cent during the first half of 2006 for Algeria concerned the fairness of the legal system
compared with the same period in 2005. and the role of law. The justice sector remains most in
question as the business community has limited
confidence in the impartiality of the judiciary system,
Structural Issues which moreover is considered to be slow and ineffective.
Recent Developments Legal system reform which began in 2001 more or

less enabled adaptation of the Algerian legal framework
Algeria is seen as a country that is institutionally to the needs of a market economy. However, its
handicapped. Institutional reform has been slow in application has suffered from procedural inadequacies,
producing the desired results and is an obstruction to from a shortage of qualified magistrates in the field of

Algeria
commercial law (particularly in binding agreements economy to external markets. It is also obvious that firms
and contracts) and from lack of capacity in that do not declare their profits – or else only part of
administrative and technical evaluation as well as in them - will tend to avoid the banking system, as it
implementing the decisions of justice. There is a clear constitutes a subsequent means of control. The status
need to strengthen the technical capacity of magistrates of property is also relevant; property remains in the
in the field of commercial law. family in small businesses, where there is a strong
preference for family savings rather than savings through
Financing is the other major constraint on the an intermediary. Important measures have been taken
business climate. A potential investor has to wait for however, some of which are beginning to be applied.
an average of four months before receiving a reply to
a request for an operating credit and almost six months The imminent privatisation of 51 per cent of the
for an investment credit. External credit (banking or capital of the Algeria Popular Credit Bank (CPA) will
other) makes up 25 per cent of operating credit and improve the overall capacity of the financial market
30 per cent of investment credit. These rates are a owing to a circulation of specific and management
reflection of the low bank ratio and weak bank know-how and thus will enhance its attractiveness;
intermediation of the Algerian economy, as well as of moreover, two other banks, the Algeria National Bank
problems relating to credit-supply conditions (BNA) and the Local Development Bank (BDL) are
(functioning of the banking and financial system) and also involved in privatisation and in opening up their
credit demand (behaviour of firms). capital to foreign investors.
The payment system is very slow and this encourages Modernisation measures began to take shape in
100 the use of cash transactions, even when large sums are 2006 with: i) the setting up of the Algerian Real Time
involved. Half of the broad money supply is held in Settlement System (ARTS) in February 2006; this
cash. The absence of a venture capital market is a salient system will enable banks to issue transfer orders for large
feature of the Algerian financial market from the point amounts in real time; and ii) the start-up of the inter-
of view of investment financing. Not having been set bank e-clearing system in May 2006.
up to take risks, the banks prefer to turn to profitable,
less risky markets. Recently, the financial environment for small and
medium-sized enterprises (SMEs) and handicrafts
Financial depth (the ratio of private-sector credit improved, with the appearance of a Credit Guarantee
to GDP) is only 12 per cent in Algeria, as against Fund (FGAR) and an Investment Credits Guarantee
140 per 0cent in China and 100 per cent in Korea and Fund (CGCI) for SMEs, which was endowed with
Thailand. The public banks maintain a solvency ratio 30 billion dinars. By 30 June 2006, FGAR’s operations
that is higher than the prudential standard of 8 per cent. remained limited: 35 guarantees amounting to
According to the October 2006 report of the Bank of 318 million dinars were awarded, an average of just over
Algeria, the banks are in fact applying rationing. Their 9 million dinars per project, covering 35 per cent of
excess of funds demonstrates the margin by which the credit granted.
banks have to increase the credit offered to firms.
A government bill has been passed on the question
These shortcomings provide a breeding ground for of venture capital (which up until now has been absent
the informal economy, which accounts for 35 per cent from the Algerian financial sector). This bill conforms
of GDP. These institutional handicaps increase in every way to the practices of countries with greater
transaction costs for small enterprises. The latter will experience in the matter. Capital investment companies
also be more likely to take refuge in the informal will help to remove the constraints on financing for
economy, in order to survive the increasingly acute public and private SMEs. Nevertheless, these
competition accompanying the opening-up of the achievements have been well below the objective of

Algeria
creating 14 specialised financial companies. In Tunisia, 1.3 billion m3 of water. The network for the conveyance
for example, there are no less than 37 venture capital and distribution of drinking water is estimated to be
investment companies (SICAR). 58 000 kilometres long. The current capacity for treating
surface water is 570 million m3 per year, added to
Access to Drinking Water and Sanitation which is a storage capacity of 5 million m3. The sewage
network is 24 000 kilometres long. The volume of
Water resources are dependent on the climate, which waste-water is estimated at 600 million m3 per year,
in Algeria’s case is arid or semi-arid in nature. Resources 550 million m3 of which comes from the towns in the
are therefore not abundant and correspond to a total north. This configuration reflects the population
of 12.4 billion m3 for surface water and 2.8 billion m3 structure, which is strongly concentrated in the north
for groundwater, 800 million m3 of which (renewable (90 per cent).
water resources) are situated in the South. To satisfy the
demands of different users (domestic, industrial and At the National Water Assizes in 1995, the
agricultural), samples of surface water are taken (dams, authorities decided to take a number of measures,
off-stream reservoirs, flowing streams/rivers) or including opening up the concession to national and
groundwater samples (boreholes, wells and springs). foreign private sectors. According to the new Article
Information on the volume of surface water intakes is 21 of the water law, the concession can be granted
relatively easily obtainable, but groundwater intakes are equally to public bodies and enterprises, local authorities
poorly recorded. Neither the agricultural sector nor the or private legal entities. This code, which was modified
water resources sector possess the relevant statistics. and completed by Decree No. 96-13 of 15 June 1996,
allows the supervisory authorities to contract out public
It is also recognised that most of the groundwater water services in whole or in part. 101
tables in the North of Algeria are over-exploited, with
negative consequences for water levels and water quality. Decree No. 96-100 of 6 March 1996 set up
Added to this is the problem of pollution of groundwater Hydrographic Basin Agencies and Basin Committees
tables by nitrates, manganese and chlorides. Due to their responsible for collecting statistical data, documents and
over-exploitation, saline intrusions are also found in information on water resources, for extraction and
groundwater tables and this phenomenon threatens consumption. Their role is to participate in monitoring
all the coastal regions. Over-exploitation is causing the state of pollution of water resources; defining the
substantial lowering of the water tables, causing drops technical specifications relating to waste-water and
in levels in most of the water tables of more than sewage treatment facilities and awareness-raising among
one metre per year. domestic, industrial and agricultural users about the
rational use of water resources and their protection.
Over-exploitation is the consequence of ineffective
groundwater resources management, due to several In order to enable these agencies to fulfil their
factors: i) an uncontrolled increase in illegal drilling; mission, the Finance Act of 1996 set up levies on “water
ii) insufficient knowledge of exploitable resources; iii) quality” and “water saving” as part of the bill for drinking
insufficient co-ordination between the national agency water and water for industrial and agricultural uses
for water resources (ANRH), which is responsible for (8 per cent for the wilayas [departments] in the north
information on water resources and the agencies that and 4 per cent for the wilayas in the south).
manage drilling; and iv) the difficulty of deciding
whether water should be allocated to human Several agencies are involved in managing the
consumption or to agriculture. territory, which is divided into five drainage basins:
Since independence, Algeria has constructed more • the National Agency for Dams (ANB) is
than 50 dams capable of regulating more than responsible for the mobilisation of resources

Algeria
through programmes for the construction of desalination, with the possibility of BOT (build-operate-
dams and various interconnected networks (pipes, transfer) concessions. Since the end of 2003, negotiations
pumping stations, water treatment plants); have been under way with the French operators Suez
• the Algerian Water Company (ADE), which is and Saur for the management of water supply and
an EPIC-type company (industrial and distribution in the largest towns.
commercial public enterprises), was set up in
2001 as a financially independent legal entity. The The water-tariff system is defined in Decree No.
ADE is responsible for the distribution and supply 05-13 of 9 January 2005. The public services pricing
of drinking water and has direct authority over system for drinking water and sewage covers all or part
26 public economic enterprises (EPE), i.e. the of the financial costs of operation, maintenance, renewal
public enterprises that actually deal with the and development of water infrastructures. Prices increase
distribution of water in the large Algerian towns according to consumption for domestic users and are
(these EPEs are known as EPEAL in Algiers and standard for other categories of users. They include a
EPEOR in Oran); standard management charge which is uniform
• the National Office for Waste Water Treatment throughout the country and a pricing structure which
(ONA) which was set up at the same time as the is specific to each region.
ADE, is an EPIC under the authority of the
Ministry of Water Resources. This Office is For households, the tariffs per m3 are 1 dinar,
responsible for i) the management and operation 3.25 dinars, 5.5 dinars and 6.5 dinars, according to
of sewage infrastructures; ii) fighting against all different consumption brackets by quantity.
forms of water pollution; iii) the design and Government agencies are charged 5.5 dinars per m3 and
102 implementation of projects for treating rainwater; industry and tourism, 6.5 dinars per m3.
and iv) undertaking study projects for the
government and local authorities; The water distribution companies in Algeria have
• The National Agency for Dams (ANB) is also shown poor financial results. Over the past few years,
responsible for promoting and implementing they have suffered serious financial losses, with
planned investments as well as for the operation continually deteriorating negative operating margins.
and maintenance of dams.
This deterioration in the financial situation of the
In each wilaya, a regional director of water (DHW) water companies is mainly due to low prices that fail
represents the ministry and depending on the size of to cover operating costs, debt service and new
projects, may be the principal negotiator with the investments. Receipts generated by the prices set by
companies offering tenders for public contracts. As central government only cover 70 per cent of the
with many sectors of activity in Algeria, most of the operating expenses of the companies. However,
companies operate in the public sector. according to the decree that defined the pricing system,
water should be provided at a price that covers
A Ministry of Water Resources was created in 2000, maintenance and operation costs of water construction
as a supervisory body for all the agencies in the sector, works and infrastructure as well as contributing to the
in order to improve co-ordination of their activities and financing of investments in maintenance and
increase co-operation in sectoral policy-making. development. The companies are obliged to ask the state
for a subsidy to make up the difference.
Recently, following the relative liberalisation of the
Algerian economy, private companies that are often Connection rates for access to drinking water (AEP)
suppliers for large public enterprises have appeared. and to the sewage network were, on average, 85 per cent
Private-sector participation is presently encouraged by in 2002. Recent statistics on types of connection are
the government, especially in the areas of seawater not available. Seven out of ten households are connected

Algeria
to the public drinking water network.The others use wells, policy was initiated during his first term of office (1999-
streams, tanks and other storage systems. Half of the latter 2004). A new government in 2006 was led by the
households are dwellings located in sparsely-populated secretary general of the National Liberation Front
areas, but dispersion is not the determining factor in (FLN), which had a majority in both houses of
average connection rates; only the wilaya of Ain Defla parliament. The last few years of the president’s second
has a rate below 50 per cent, because it has been lagging term of office have been marked by the 2005-09 PCSC.
behind with development of its sewage network. Initially estimated at $60 billion, this plan has been re-
Divergence from the average connection rate to the evaluated at over $140 billion, a substantial amount for
sewage network is not very great, with the exception of a country like Algeria.
a few wilayas situated mainly in the far South.
This budget was almost entirely intended for
The Millennium Development Goal (MDG) for economic and social infrastructures. Human
water aims to reduce by half: i) the percentage of the development (health, housing and education) should
population without permanent access to an improved benefit distinctly; 25.5 per cent of the budget is allocated
source of drinking water, by 2015; and ii) the percentage to housing and living conditions (Finance Act for 2005)
of the population that does not have permanent access and there should be additional indirect effects due to
to improved sewage facilities by 2020. These aims are investments in infrastructures (22.7 per cent). The
attainable in view of the projects under way in the authorities seem determined to equip the country with
areas of water and construction works. The capacity for wide-ranging economic and social infrastructures.
waste-water treatment could be multiplied by four in Large-scale roadworks have begun on the East-West
the medium term through the rehabilitation of sewage motorway (1 200 kilometres), as well as works on
works and the creation of new works. railway lines of similar distance. 103
The local authorities responsible for the operation Compared with the previous decade, the overall
of sewage infrastructures require considerable financial social environment has greatly improved. The state’s
means if they are to provide a proper service. It is substantial revenue has enabled it to reassume a role
therefore important to set prices at a level that will of redistribution. The social categories receiving
enable these authorities to pay for sewage-management government assistance are relatively better targeted
facilities. The new pricing system in place since 1996 than during the controlled-economy epoch, when the
has probably had positive effects on the finances of policy of low prices was synonymous with rationing and,
district authorities that are still faced with serious cost- hence, with inequality. Government social action
recovery difficulties. represented between 5.5 per cent and 7.7 per cent of
GDP from 1999 to 2005. For GDP excluding oil and
The comfortable financial situation produced by gas, it was between 10 per cent and 13 per cent over
positive trends in oil gives the Algerian authorities a wide this period. Compared with income tax, which is
margin of manoeuvre for achieving the water-related limited to 2.5 per cent of GDP, government action is
MDG by authorising major investments to upgrade the very considerable. Social solidarity is partly financed
infrastructures completely, since these are in a state of by oil taxation.
general disrepair due to lack of proper maintenance.
According to the figures of the National Office of
Statistics (ONS), economic growth, led by oil and
Political Context and Human gas, has been accompanied by a spectacular
Resources Development improvement in employment. The unemployed
population in 2005 numbered 1 474 549 persons (of
The aim of national reconciliation is notable among which 253 545 were women), which is a total
President Abdelaziz Bouteflika’s political actions. This unemployment rate of 15.3 per cent, as against almost

Algeria
30 per cent in 1999. In urban areas, the rate is 14.8 per rate of 3.1 per cent from 1990-2003, whereas over the
cent, as against 16 per cent in rural areas. This same period, population growth was less than 1.6 per cent.
improvement is due to work-generation arrangements
for young people, the support given to micro-enterprise The construction programme for one million homes
creation and the Economic Recovery Programme within the framework of the PSRE – a large part of
(PSRE), followed by the PCSC. The government aims which has already been carried out – has helped to
to reduce the unemployment rate to under 10 per reduce the pressure on demand. The occupancy rate
cent by 2009 through significant infrastructure creation. (TOL) went down from 7 persons to 5.5 persons
The present buoyancy in massive job creation is unlikely between 1999 and 2004 and is expected to go down
to continue on a long-term basis, being the direct or to 5 persons in 2009, with the construction of another
indirect result of budgetary efforts and these have not million homes under the PCSC.
yet been successfully superseded by economic growth
directly created by companies. Life expectancy at birth, which constitutes both
health and development indicators, has increased by
At the same time, the increase of 25 per cent in the more than 20 years since 1970. It went above 73 years
minimum guaranteed salary from January 2004 enabled in 2005 and is now estimated at 72.5 years for men
purchasing power to catch up, due to the relatively and 74.4 years for women.
moderate rate of inflation – even without taking into
account increasing state intervention in gross household According to the 2006 human development report
income. The proportion of transfer payments in gross of the National Economic and Social Council (CNES),
household income went up from 16.2 per cent in 1996 illiteracy – which is usually accompanied by poverty –
104 to 20.3 per cent in 2000 and to 23 per cent in 2004. affected 34.5 per cent of the population aged 15 years
In June 2006, the state allocated a total budget of over and over, or more than 3 million inhabitants, in 1998.
100 billion dinars (approximately $1.4 billion) to This figure went down to 2.6 million inhabitants in
improve the allowances scheme of public-service 2005, but this is not a very significant reduction.
employees. This measure, for example, raises the
minimum public-service salary by about 15 per cent. According to the United Nations Development
Programme (UNDP), efforts made up until now have
Household consumption has benefited from the been insufficient to create any marked improvement
increase in salaries and the fall in unemployment. Real in the human development indicator for Algeria, which
household consumption increased by an average annual was ranked 102nd out of 179 countries in 2006.

Angola
Luanda
key figures
• Life expectancy (2006) 41.7
Angola
A NGOLA IS EXPERIENCING RAPID and prolonged overall growth and of export revenues, although they
economic growth, thanks to a boom in commodity contribute more to job creation. Improved performance
prices and rapid development of oil and diamond in banking, construction, retail
A number of factors
production. Nevertheless, and despite encouraging trade and telecommunications
are fostering rapid
signs of recovery in the non-mineral sectors, the lack suggests, however, that some
and prolonged economic
of structural reform, widespread inefficiency and weak impacts from the oil boom are
growth but governance
governance are still jeopardising the potential of percolating through to the broader
needs improving.
economic growth to bring about social development. economy. Agriculture is also
picking up, although output and productivity remain
Record-high international oil prices and rapidly far below potential and the situation is unlikely to
growing output from new oil fields sustained real GDP improve considerably until infrastructure rehabilitation
growth, which reached 14.8 per cent in 2006, following is completed, markets for key inputs are established and
20.6 per cent in 2005, and is expected to remain high mine clearance is finished.
at 27 per cent in 2007 and 17.3 per cent in 2008.
Angola is exceptionally dependent on oil. Other At the macroeconomic level, despite the progress
economic activities account for a negligible share of recorded since the end of the war, transparency of oil
107

■ Angola - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Angola - Real GDP Growth (%)
Real GDP Growth (percentage) Per Capita GDP ($ PPP)
30 8000
7000
25
6000
20
5000
15 4000
3000
10
2000
5
1000
0 0
1999 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Source: IMF and National Institute of Statistics data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/474756712485

Angola
revenue management remains incomplete, and much somewhat slower rate in 2006 than in 2005, but is
remains to be done to align fiscal policy actions with expected to accelerate in 2007.
the priorities of poverty eradication. Angola’s relationship
with the Bretton Woods institutions is poor, and progress In 2005, the oil sector accounted for more than
in reaching an agreement that would broaden the 56 per cent of GDP, 83.1 per cent of government
country’s access to international financial markets has revenues and 94.1 per cent of exports. In 2006, oil
stalled as the authorities have gained access to alternative production is estimated to have grown by 15 per cent
bilateral credit lines. An expansionary fiscal policy compared to 26 per cent in 2005. Daily production in
continues to place the burden of macroeconomic offshore fields, mostly in the Congo River basin opposite
stabilisation on monetary policy. Although the latter the Cabinda enclave, averaged 1.4 million barrels a day
has proven to be very effective in reducing inflation, in 2006 and is expected to peak at 2.6 million barrels
it has generated adverse consequences in terms of high in 2010/11. The slower growth was due to maintenance
interest rates, an over-valued domestic currency and work in a number of fields, including the Girassol field
uncompetitive domestic prices. in Block 17, and the slower than anticipated start-up
of production on the Dália field. Hence, instead of the
At the microeconomic level, despite the signs of initial forecast of 597 million barrels, annual output
recovery in the private sector, risk taking and amounted to 510 million barrels. With reserves now
entrepreneurship continue to be stifled by high de jure estimated to be between 20 and 22.8 billion barrels, the
and de facto barriers to entry, including privileged access growth rate of production is expected to accelerate in
to market opportunities and finance for a small number 2007 and further increase in 2008. In early 2006, oil
of business people. Some important reforms have been was produced for the first time from Block 14, while
108 made – for instance, to accelerate the procedures for the Benguela, Belize, Lobito and Tomboco fields are
establishing new companies – but implementation has expected to produce 200 000 barrels of crude oil per
been delayed in practice by the poor state of the day in 2008. New concessions will be awarded in 2007,
bureaucracy. and imports of increasingly sophisticated equipment are
rising as exploration and exploitation move to ultra-deep
Finally, inter-generational considerations give rise fields. In December 2006, Angola officially became a
to concern. Angola may be experiencing a petroleum member of the Organisation of Petroleum Exporting
boom, but output will soon reach a plateau and then Countries. Moreover, new explorations are being
decline quickly. To prepare for this, the authorities undertaken in the field of natural gas, whose potential
should redouble efforts to diversify and increase has not been estimated yet.
production by wisely investing current revenues for
the benefit of future generations. One way of doing so The Angolan oil boom has now been under way
would be to accelerate land reform, increase allocations for a number of years, and reform of the policy
to education and health, and improve the efficiency of environment is more imperative than ever. The
public spending. government has traditionally intervened in the oil
industry through Sonangol, a state-owned enterprise
that retains responsibility for regulation and contract
Recent Economic Developments negotiations, is sole owner of the fields and has entered
into production-sharing agreements with major western
Developments in the mining sector are driving oil companies, led by Chevron, Total and ENI, although
the currently high rate of GDP growth. In 2006, the independent companies, as well as national oil
growth rate of the oil sector slowed down when companies from Brazil and China, also play an active
compared to 2005, while that of labour-intensive and growing role. This combination of Sonangol’s
diamond mining strongly increased. Overall, the various roles has long been criticised for giving rise to
mining industry is estimated to have expanded at a conflicts of interest.

Angola
The process of Angolanisation, started in 1982, (about 5 per cent of total exports in 2005). Angola is
requires oil companies to staff operations in the country considered to be one of the world’s most promising
with Angolan workers. The government recently diamond areas, with estimated reserves of 400 million
proposed new procurement and employment clauses carats of alluvial diamonds and 40 million carats of
in the production-sharing agreements aimed at kimberlite, although detailed geological exploration
increasing local participation in the industry. This has started only recently and modern techniques are
policy attempts to address the fact that the sector has scarcely in use. Production increased by 16.2 per cent
little direct employment impact, creates few direct in 2005 and by 41.7 per cent in 2006 as output at the
linkages to other sectors of the economy and relies on Catoca mine doubled, reaching 10 million carats. This
imports of capital equipment and specialised services. trend is expected to continue, at least in the short term,
Nevertheless, there is a risk that foreign oil companies since 23 new exploration licences were issued to private
will recruit most of the few highly skilled Angolan enterprises in Bié province. To add value to production,
workers and crowd out the public administration and the largest polishing and cutting factory in Africa
the non-oil private sector. Moreover, having reduced opened in November 2005. The Angola Polishing
inflation, modernised the banking sector and introduced Diamonds factory – a joint venture between the state
electronic payments and real-time gross settlement of diamond company Endiama, the Angolan consortium
balances, the government has renewed its calls for oil PROGEM and Lev Leviev Diamonds (LLD), the
firms to route all industry payments through the world’s second-largest diamond trading
domestic banking system. These calls have raised company – employs 400 technicians. As in the case of
resistance among oil firms, which doubt the capacity Sonangol, Endiama combines the roles of regulator
of local banks to handle large amounts of money. and economic operator.
109
Diamond mining in extensive kimberlite and alluvial The domestic non-mining economy continued its
projects is the second-largest source of export revenues recovery in 2006, exhibiting growth of 13.8 per cent
Figure 2 - GDP by Sector in 2004/05 (percentage)
Other services Agriculture, forestry and fishing
9% 8.6%
Wholesale and retail trade
14.9%
Construction 4.1%
4.1%
Manufacturing 56.3%
2.9% Oil and gas
Diamonds
Source: Authors’ estimates based on National Institute of Statistics data.

http://dx.doi.org/10.1787/384572172060
as the dynamism spread from construction and services self-sufficient in food production, the largest staple
to agriculture and, to a lesser extent, manufacturing. food exporter in sub-Saharan Africa and one of the
This positive trend is expected to impact favourably on world’s biggest coffee exporters. The civil war exacted
internal market development and job creation and thus a heavy toll on the agricultural sector, especially in the
contribute to poverty reduction. central and northern regions, which were the most
affected by fighting. Although production is recovering
Angola has fertile soil and a climate conducive to (the growth rate for the sector over the 2000-04 period
agriculture; in fact, at independence the country was has averaged 13.3 per cent and production has increased

Angola
by more than 80 per cent since 2000), agriculture up by 22.14 per cent in the period January-September
accounted for only 8.6 per cent of GDP in 2005, 2006, following 17 per cent growth in 2005. Progress
because agricultural production is still hampered by the has been made in rehabilitating transport
widespread presence of land mines, infrastructure infrastructure, particularly roads and bridges. Chinese
inadequacy, low productivity, input shortages in general contractors completed major projects such as the Keve
and the absence of storage systems. bridge and the Luanda-Namibe railway, although
completion of the Luanda-Malanje link will be delayed
Agricultural output grew at a rate of 17 per cent until 2007. In Luanda, on the other hand, a number
in 2005, but the 2005/06 agricultural season has been of Portuguese construction firms completed or
below expectations, due to poor rains which have announced projects involving residential, hotel and
reduced Angola’s total cereal production to 742 000 office buildings. All in all, the construction sector
tonnes, a 15 per cent fall compared with the previous expanded by a remarkable 66.2 per cent in 2006, and
season. According to the Famine Early Warning Systems the hosting of the Africa Cup of Nations football
Network (FEWS Net) assessment, households expect championships in 2010 is expected to sustain growth
drought conditions to reduce their maize crops by 40 over the next few years.
to 70 per cent. By contrast, coffee production increased
during the 2005/06 growing season, but the road to The growth rate of the services sector (which
recovery remains a long one due to high production accounted for about 15 per cent of GDP in 2005)
costs and poor infrastructure. Coffee production had slowed in 2006, compared to 8.5 per cent in 2005, with
dropped sharply during the civil war, when output of the trade sub-sector taking the lead. Telecom-
cash crops in general became insignificant. munications, and especially mobile telecommunication
110 services, have experienced exceptional growth since
Angola once had one of Africa’s most developed 2002, benefiting from the end of the war and the
manufacturing industries, but the civil war led to a privatisation of the sector. The total number of cell
prolonged phase of negative growth. There are signs, phone subscribers reached 2.6 million at end-2006
however, that production is picking up in certain (a 44 per cent increase), with the incumbent’s market
industries, as consumers’ purchasing power recovers in share falling slightly to 81 per cent. The geographical
Luanda and other major urban centres. The sector distribution of telecommunication service is extremely
recorded a cumulative growth rate of 67.4 per cent in asymmetric, with Luanda and other few major towns
real terms for the 2000-04 period, 24.9 per cent in 2005 accounting for more than 85 per cent of the existing
and 30.7 per cent in 2006. The beverages sector, for connections. The growth potential of the sector is
instance, grew by 8 per cent in 2005 and is estimated extremely large, considering the low access rate (0.60 per
to have grown even more in 2006, benefiting from the cent), well below that of neighbouring countries such
national football team’s participation in the World Cup. as Namibia (6.86 per cent), South Africa (11.46 per
In general, agribusiness is expected to benefit from the cent) and Botswana (5.64 per cent). The financial
recent opening of cold-storage facilities in Luanda and sector is continuing on the track of fast post-war
the announcement of a rehabilitation programme for the development. Ten commercial banks have applied for
national cold-storage network. On the negative side, operating licences, and in 2006 two new banks opened,
the performance of the only existing petroleum refinery bringing the number of operating banks to nine. Bank
continues to be hampered by persistent bottlenecks, deposits are rising, access to short-term credit is
partly associated with the nature of the supply improving, and residential mortgages are increasing, but
arrangement with Sonangol and distorted incentives access to other long-term finance is limited, especially
that encourage imports of refined petroleum products. outside Luanda.
Construction, another booming sector, is leading The demand structure reflects Angola’s historical
growth in the non-oil sectors, with physical production reliance on oil exports and imports for most consumer

Angola

1997/98 2004/05 2005/06(e) 2006/07(p) 2007/08(p)

(current prices)

Public 5.9 4.7 80.0 12.0 15.0
Private 29.3 2.8 5.0 15.0 10.0
Consumption 81.1 68.0 21.7 18.1 21.1

Public 28.3 24.1 10.4 8.0 13.2
Private 52.8 43.9 25.6 21.2 23.2

Exports 56.2 72.6 9.6 30.1 7.0
Imports -72.5 -48.0 26.9 14.8 16.1
http://dx.doi.org/10.1787/624438874407
goods. This state of play is expected to continue in implemented. In fact, the country’s success in curbing
2007 and 2008, with mineral exports continuing to inflation is largely due to expensive exchange-rate
improve the external sector balance and further stimulate operations, which sterilise the huge amounts of foreign
growth. The investment component has continued to currency injected in the economy, while fiscal policy
expand and is estimated to have increased by nearly remains extremely expansionary, generating strong
52 per cent in 2006. Private investment remains inflationary pressure. The concern arises from the fact 111
concentrated in the mineral sector, whereas public that this policy seems to be sustainable only as long as
investment, which expanded at an exceptional rate in oil prices (and revenues) remain high.
2006, remains focused on infrastructure reconstruction
and the social sectors. Growth of both public and Some improvements have been made in enhancing
private investment is expected to return to more budgetary oversight over most off-budget expenditures,
reasonable rates in 2007 and 2008. Private consumption such as the quasi-fiscal operations carried out by Sonangol
is recovering and accelerating, thanks to increased on behalf of the government and the central bank’s
incomes in Luanda and higher public sector salaries. operating deficit. Nonetheless, the country still has no
As a consequence of this growth in investment and medium-term expenditure framework allowing for
consumption, import volumes are expected to grow by countercyclical expenditure planning, and the budget
27 per cent in 2006. design does not seem to take into serious consideration
the limited absorption capacity of the public
administration. Unfortunately, the combination of high
Macroeconomic Policies oil prices, reduced leverage of the international financial
institutions with respect to new financing opportunities
Fiscal Policy for the country and the upcoming legislative and
presidential elections make any serious change in the
In recent years, efforts to reduce inflation and policy mix rather unlikely in the short term.
improve public finances have been broadly successful,
and these gains were further consolidated in 2006, Despite some improvements on the revenue side,
when the inflation rate approached the target of 10 per a great deal more progress is needed to achieve full
cent and the fiscal balance remained soundly positive. transparency concerning the expenditure side and oil
Nevertheless, the sustainability of the policy mix remains revenues (especially concerning Sonangol’s quasi-fiscal
a cause for concern, unless structural reforms are operations). Angola remains an observer to the Extractive

Angola
Industries Transparency Initiative, arguing that full Despite the conservative oil price adopted, the
membership requires a set of implementation measures government had to revise the 2006 budget to take
that exceed the country’s current capacity. For the time account of higher oil prices ($56 per barrel instead of
being, data on oil production and exports are published the initial forecast of $45), lower oil production and
on the website of the Ministry of Finance and the weaker GDP growth. Oil revenues, although increasing,
financial statements of Sonangol for fiscal years 2003 were also revised downwards, from 31 to almost 28.5 per
and 2004 have been audited by international firms, cent of GDP. The government maintained its basic
although the latest audit reports have not yet been public spending priorities, as the oil revenue windfall
published. Revenue collection in the expanding made it possible to more than double budgeted
diamond industry remains opaque. expenditures. The largest bill is for the social sectors,

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue 6.6 7.8 6.8 5.7 5.8 5.8 6.1
Oil revenue 19.2 28.9 29.3 31.0 28.5 27.8 25.4
Interest 6.8 2.3 2.3 1.9 1.4 1.8 1.4
112
Primary balance -22.3 -4.6 3.4 9.8 6.8 8.1 5.2
Overall balance -29.0 -7.0 1.1 7.9 5.4 6.3 3.8
a. Only major items are reported
Source: IMF and Ministry of Finance data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/837655487055
which attracted more than 30 per cent of total terms over 2005. This level should be maintained in
expenditures, as against 29 per cent of total spending 2007 and 2008.
in 2005. Nevertheless, taking into account the weak
absorption capacity of the public administration, it Overall, fiscal year 2006 is expected to close with
seems highly unlikely that the government’s over- a substantial surplus of 5.4 per cent, although the fiscal
ambitious expenditure plan will be executed. position is deteriorating with respect to 2005. The
fiscal balance is expected to improve marginally in
The trend of current expenditure, which decreased 2007 and to deteriorate again in 2008, due to a probable
in terms of GDP share, is characterised by an increase decrease in oil prices and hence in government revenue.
in public wages and new recruitment, and a decrease
in goods and services expenditure, while subsidies to The 2007 budget as announced by the government
fuel, water and electricity were maintained and in December 2006 is based on the assumption of an
accounted for 3.8 per cent of GDP in 2006. The 2006 international oil price of $50 for Angolan crude, and
budget marked a significant change in the composition includes expenditure commitments for 1.8 trillion
of expenditure, with the share of capital expenditure kwanzas (equivalent to a 32 per cent real increase).
in overall budgeted spending increasing considerably, Although expansionary, the fiscal policy seems more
but not as much as foreseen by the government. Capital reasonable than in 2006, taking more into consideration
expenditure is estimated at 6.7 per cent of GDP in 2006, the limited absorption capacity of the economy. This,
corresponding to an increase of 80 per cent in real and in particular the forecast 12 per cent decrease in

Angola
net investment, should be considered a step towards produced goods, thus working against the
the improvement of public expenditure efficiency. The diversification of production.
social sectors are expected to receive 28.1 per cent of
fiscal outlays, while the share of defence and security External Position
should fall further to 12.7 per cent as the country
consolidates reconciliation. The budget is supposed to Following the introduction of a revised six-level
generate 260 000 new jobs in 2007 and 403 000 in tariff structure in early 2005, the simple average Most
2008. The impact of the expenditure increase on the Favoured Nation applied import duty stood at 7.4 per
fiscal balance is expected to be offset by larger than cent in 2005. Rules of origin are relatively simple,
budgeted oil receipts. However, this might not be the although the full implementation of Angola’s integration
case in 2008, when oil revenue is expected to decrease into the Southern African Development Community
sharply, leading to a deterioration of the fiscal balance. (SADC) Trade Protocol would add to their complexity.
Angola has made very little use of bilateral schemes with
Monetary Policy the United States and the European Union under the
Generalised System of Preferences (GSP).
Owing to an effective monetary policy, the inflation
rate has been decreasing dramatically since 2003, with The trade balance has continued to improve, thanks
the annual rate declining from 98 per cent in that year to high oil prices coupled with increased production,
to 43.5 per cent in 2004 and 23 per cent in 2005. which boosted export earnings in 2006. Oil and
Despite a slight increase at the end of the year, mostly diamond exports, which together amount to 99 per cent
fuelled by a spike in transport prices, inflation fell to of total exports, are estimated to have risen in volume
about 10 per cent in 2006, almost achieving the by 13 per cent in 2006. Over the projection period, 113
government target. It is expected to stabilise at around export volumes are expected to rise dramatically, by an
9 per cent in 2007 and 2008. estimated 31 per cent in real terms in 2007 and 8 per
cent in 2008, due to expanded crude oil production,
This result has been achieved thanks to the ex offsetting the decrease in oil prices which is expected
ante stabilisation strategy of Banco Nacional de Angola for 2007. The increase in households’ disposable income,
(BNA), which has been purchasing kwanzas with coupled with the growth in oil production and the
dollars (derived either from oil receipts or from loans boom in the construction sector, is expected to lead in
backed by promises of future oil receipts) to stabilise turn to an increase in imports, particularly of cement
the kwanza’s nominal exchange rate against the dollar and capital goods, which are projected to grow by 16
and dampen the inflationary pressures caused by and 17 per cent per year in real terms in 2007 and 2008.
substantial public expenditures. In the first half of
2006, the BNA sold $2.755 billion, twice as much In the first half of 2006, freight forwarders’ shipment
as in the corresponding period in 2005, but still below data indicate that the United States remains the largest
the amount forecast because of the low absorption export destination (33 per cent), followed by China
capacity of the economy. In consequence of this (25 per cent). The European Union remains relatively
strategy, the nominal value of the kwanza has been marginal for exports, while it accounts for roughly half
stable against the dollar since the last big nominal of imports. Portugal is the largest source country, with
appreciation of the exchange rate (7.8 per cent) in imports from this country totalling EUR 1.098 billion
November 2005, while the real effective exchange in the 11 months to November 2006 (a 52 per cent
rate has continued to appreciate. Real appreciation was rise over the same period in 2005). The growth of
40 per cent between 2004 and 2005. While this imports from Brazil to Angola has also been dramatic
strategy keeps down the prices of imports, which (60 per cent at the end of 2006, to reach $836 million).
represent 90 per cent of domestically consumed goods, China’s 2005 exports to Angola stood at $370 million,
it damages the competitiveness of domestically an increase of 91 per cent.

Angola

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 22.4 28.9 38.6 44.9 41.4 41.6 36.1

Services -38.6 -22.4 -22.6 -20.4 -18.3 -17.3 -17.4
Factor income -14.9 -12.4 -12.5 -11.8 -8.7 -11.4 -16.8
Current account balance -28.8 -5.1 3.5 12.8 14.5 12.9 2.0
Source: IMF and Banco Nacional de Angola data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/661783765870
The current account balance has been positive since the Russian bank Vneshtorgbank and local partners
2004, and its improvement was consolidated in 2006, constituted Banco VTB África and ten additional
when the current account surplus expanded from licences have been requested. As for FDI outflows, the
12.8 per cent of GDP to 14.4 per cent. This result is government acquired the absolute majority of shares
wholly attributable to the trade surplus, which largely in the cement industry from Portugal’s Cimpor in
offsets the persistent deficit in the factor income account. September 2006. In November, Sonangol took full
The latter, highly correlated with the performance of control of the Luanda refinery from Total, in
exports, is estimated at 8.7 per cent in 2006, down from anticipation of a major investment, possibly in
11.8 per cent in 2005. It is expected to worsen in 2007 partnership with Asian investors.
114 and 2008, however, as foreign oil companies remit
increasing profits to their headquarters following the The external debt burden continued to ease,
increase in oil production. following the trend of recent years. At end-2004,
Angola’s debt amounted to $10.6 billion (including
Together with Nigeria, Angola was Africa’s largest arrears and overdue interest), which corresponds to
recipient of foreign direct investment (FDI) flows over 53.6 per cent of GDP, down from 99 per cent in 2001.
the 2003-05 period, owing to its mineral wealth. In 2005, although the external debt stock increased
Rising investment in the country is due to high oil slightly when Sonangol contracted a new $3 billion oil-
prices, together with promising reserves prospects. In backed commercial loan, the IMF and World Bank
2006, a number of new licences for nine blocks were estimate that the debt-to-GDP ratio fell below 38 per
granted, and the creation of five new blocks was cent. Thanks to the high GDP growth rate, this
authorised. Also in the natural resources sector, the downward trend is expected to continue for the next
world’s largest mining company, BHP Billiton, invested two years, stabilising at 24.6 per cent in 2007/08. A
in nine diamond projects and is interested in investing quarter of the outstanding stock of external debt consists
in base metals. of arrears, nearly all owed to the Paris Club. Imports
are increasingly being financed by new credit lines
Although FDI flows remain small in the rest of the provided either by Paris Club members that have signed
economy, new opportunities continue to emerge. In bilateral debt renegotiation agreements (such as
agriculture and food processing, for instance, Israeli and Germany, Spain and Portugal) or by non-OECD
other investors are exploiting pent-up demand for fresh countries such as Brazil, Israel, Russia and China. In
fruit and vegetables in peri-urban areas, at prices addition, Angola seems to have reached agreement on
considerably lower than those of imported food. In a supplementary multi-billion dollar facility from
banking, the Portuguese banks Banco Internacional China, although official information on its terms is not
de Crédito (BIC) and Banco Comercial Portugues available. Access to trade credits from a wider variety
(BCP Millennium) expanded their branch networks, of sources has helped to sustain reconstruction efforts

Angola

Source: IMF. 115

http://dx.doi.org/10.1787/617054383372
and give the treasury some operational autonomy. It development, including egregious examples of rent-
is more difficult to gauge the risks that such new loans seeking behaviour, limit the potential benefits of the
entail for debt sustainability and creditworthiness. current economic boom. Moreover, the persistence of
inefficiency in the public sector and of abuses of market
Similarly, it is hard to predict whether a home- power by state-owned enterprises in various sectors
grown reform programme that takes into account some has impeded fiscal consolidation, shifting the burden
of the IMF’s recommendations will provide a sufficient of macroeconomic management to monetary and
basis for successful conclusion of ongoing negotiations exchange rate policies.
with the Paris Club. After three decades of external
intervention, Angola’s government is sensitive to close International rankings such as Doing Business and
monitoring by the international community. the Transparency International index confirm that
major bottlenecks due to endemic corruption, outdated
regulations and rent-seeking behaviour frustrate
Structural Issues entrepreneurial efforts, thus hampering the creation of
new job opportunities. Angola ranks 156th out of 175
Recent Developments countries in the 2007 Doing Business classification,
losing one place with respect to 2006. Although the
The transformation of Angola into a functioning time required to open a business has been drastically
market economy is a long process that has not been reduced since 2004 – falling from a year to 30 days,
facilitated by the circumstances of the country’s post- thanks to the creation of a one-stop window for business
conflict transition. Still, the pace of structural reforms creation – barriers to entry remain high as the regulatory
is disappointing. Hindrances to private sector burden is heavy and the privilege of venturing into

Angola
promising new business sectors is reserved to a small households’ reluctance to place their savings in formal
number of businesses thought to have strong political financial institutions. As a result, total bank deposits
influence. According to the 2006 World Economic increased by 23.9 per cent in real terms in the first half
Forum ranking, Angola is the least competitive out of of 2006. Although the stock of commercial credit
125 economies. Decentralisation, meant to improve increased by just 1.38 per cent over the same period,
delivery of public services, remains incomplete, as the liquidation of treasury liabilities released resources
administrative tasks have been transferred to lower for the productive sectors and credit to private firms
levels of government without a corresponding delegation increased by 42.2 per cent.
of spending or taxation authority.
A new development bank, Banco de
Since 2003, the authorities have introduced an Desenvolvimento de Angola (BDA), started operations
array of new legislative measures that have gone in the in late 2006 and will receive 5 per cent of oil revenues.
right direction but not fully borne fruit in the absence A similar initiative is the Fundo Nacional de
of accompanying normative and institutional measures. Desenvolvimento (FND), which will disburse up to
In fact, since 2005, the pace of structural reforms has $300 million per year at concessional terms. The FND
slowed. A competition bill was drafted in 2004 but has will be managed by BDA and be funded partly through
not yet been transmitted to parliament. Concerns oil and diamond extraction levies. The experience of
regarding the status and success of the privatisation the Fundo de Desenvolvimento Economico e Social
process had led the authorities to suspend it in 2001. (FDES), which managed to disburse only a fifth of its
To reactivate this process, a confidential diagnosis budget (also drawn from oil revenues) to support
presented to the authorities in 2006 includes proposals investment in the private sector, illustrates one of the
116 to draft specific laws to cover public enterprises and challenges facing these new institutions.
holders of public service concessions. In the meanwhile,
empire-building and prestige-seeking seem to abound Inefficiencies in thermal generation facilities and
in the strategies of state-owned enterprises. delays in completing the Capanda dam and
hydroelectric plant still plague energy infrastructure.
The national airline TAAG embarked on a major Brownouts and power cuts have become even more
investment drive in view of a long-needed overhaul of frequent as the economy accelerates, and less than
its ageing fleet. The $150 million syndicated loan that 20 per cent of the population has access to electricity.
a pool of local banks secured towards the acquisition In Luanda, the number of households connected to the
of six new aircraft was rightly seen as a sign of the grid is as low as 131 500, one major obstacle to the
country’s financial maturity. Unfortunately, TAAG is increase of capacity and investment being the low tariffs
still on the International Air Transport Association applied to electricity. Nevertheless, thanks to massive
(IATA) list of carriers showing a sub-standard safety government and Chinese investments, electricity
record, and its pilots have failed so far to obtain flying generation is expected to grow by 42 per cent in
certification for the new aircraft, which were delivered 2007/08. In fact, a huge number of projects are to be
on the day of Angola’s 31st anniversary. Sonangol and, financed by a new Chinese credit line of $5 billion,
most recently, Endiama have decided to expand their including the Apanda-N’Dalatando power line (2007),
airline business. a new power line from the Cambambe dam to Luanda
(2007), a series of electricity distribution and
In financial markets, the dollarisation of the transformation centres (end-2006), a power line from
economy remains a cause for concern. Nonetheless, Quifangondo to Caxito (2007) and a $70 million
the return of price stability, the entry of new banks, the project to electrify Luanda’s suburban areas. In the
opening of a substantial number of new branches in meanwhile, government wishes to increase hydroelectric
Luanda and the provinces, and the availability of potential: the Cambambe dam, in Malange province,
withdrawal facilities have combined to overcome is expected to increase production by 260 MW from

Angola
2007 and the start-up of two new turbines should In rural areas, safe water sources are in most cases
bring the dam’s output to its full capacity of 530 MW standpipes – generally boreholes with hand
by July. pumps – where water is free of charge. Up to 50 per
cent of all standpipes are out of order, however, due to
Access to Drinking Water and Sanitation lack of spare parts and of maintenance in general. This
situation obliges most people to rely on a seasonal
Angola has abundant water resources, but existing supply of surface water, which they must often travel
hydraulic infrastructure is largely inadequate, having considerable distances to collect. It is important to
been traditionally confined to the production of energy. stress that this broad picture masks huge inequalities
Moreover, households’ access is severely deficient, as the between provinces, due to the extent to which different
available infrastructure was destroyed or damaged areas were hit by the war, to the presence of national
during the civil war and little or no investment has been and international NGOs, and to the different
made to cope with massive rural-to-urban migration. management models chosen by each province.
In urban areas, installed capacity is estimated, on Since the secondary legislation (regulatory
average, at 40 litres per capita per day, for per capita framework) attached to the 2002 Water Law is still
consumption of 20 litres per day. In peri-urban areas, waiting for approval by the government, each province
however, where most of the poor and most vulnerable can still choose its own management model for the
population groups live, consumption falls as low as water system. At central level, all water affairs are under
5 litres per capita per day. Water utilities, where they the responsibility of the Ministry of Water and
exist, encounter major financial difficulties, due to Electricity, which plays the role of regulatory authority,
inadequate tariff systems, a huge proportion of whereas technical support and operational supervision 117
unaccounted-for water (between 50 and 60 per cent) for the provincial departments is handled by the
and very poor collection ratios. This situation, together National Water Directorate (Departamento Nacional
with the poor skills of available staff, leads to continuing de Agua). In turn, provincial agencies create local units
degradation of the existing infrastructure. Households at town and community level (brigadas das aguas and
rely on fountains, standpipes and truck tank systems grupos de agua e saneamento). This design, associated
for their water supply. with the more general process of decentralisation, is only
partially implemented, however, as local units are either
In the capital city, water is provided by Empresa inexistent or not officially recognised by the central
Provincial de Aguas de Luanda (EPAL) and, in informal government. Where the budget is concerned, the system
settlements, by informal private operators. Water sold also remains mostly centralised, with central and
by private truck tanks is much more expensive ($10/m3 provincial governments allocating funds to local units.
as against less than $0.50/m3). EPAL maintains 100 000
connections, thus providing water to fewer than Data collection and processing in Angola remain
1 million people through home connections or a pre- very poor. It is therefore very difficult to have reliable
paid fountain system. Considering the overall quantitative estimates of access to safe water and
population of Luanda (close to 5 million) and the sanitation. At the national level, the 2001 UNICEF
obsolescence of the hydraulic network, which dates Multiple Indicator Cluster Survey sets the percentage
back to the Portuguese period, the service provided is of population with access to safe water at 62 per cent
plainly inadequate. The network, measuring and to sanitation at 59 per cent, but these figures are
570 kilometres, needs considerable investment, in widely believed to overestimate access. A later estimate,
terms of both length and capacity, and water quality produced by UNICEF in 2002, suggests that just
controls should be introduced. However, the extension 34 per cent of the urban population has access to safe
of the network to peri-urban areas would require an water, this figure rising to 39 per cent for rural areas.
urbanisation plan, which does not exist. This picture places Angola among the worst performers

Angola
in Africa, despite its higher than average GDP per construction of infrastructure constitute a major
capita. disincentive for private companies to enter the sector,
the Water Law provides for the entry of private operators,
Sanitation is even more neglected. Only 59 per specifying the rights and duties associated with grants
cent of the urban population has access to sanitation, and licences, as well as the terms under which they can
whereas in rural areas this percentage falls to 26 per cent. be delivered.
Even in urban areas, the high population density and
the concentration of human and non-human waste Since the central government provides only 50 per
can produce dramatic health emergencies, such as the cent of EPAL’s overall financing, other sources of
cholera epidemic that afflicted Luanda and other major technical and financial support are clearly needed for
towns in 2006. Besides Luanda, only four cities have expanding the system. With only a limited role foreseen
waterborne sewage systems, and in all cases these serve for the private sector, external donor support will
only very central areas covering 17 per cent of the continue to be important in Luanda and elsewhere. The
urban population. main external partners are China (construction and
rehabilitation of infrastructure), Brazil (construction of
As part of a Water and Sanitation Development water treatment facilities and technical assistance) and
Strategy, the government has identified the needs and the European Commission (technical assistance). Since
deficiencies of the current system and formulated an 2003, the Portuguese co-operation agency has been
ambitious 14-year programme to develop the sector. assisting in the restructuring and modernisation of
The strategy, which would require investment of up to EPAL, providing technical assistance and capacity
$3 billion, calls for a 70 per cent increase in improved building.
118 water production and the construction of 927 fountains
and 1 060 wells. As for sanitation, the government’s
objective is to reach an access rate of 85 per cent in urban Political Context and Human
areas and 65 per cent in rural areas by 2016. Considering Resources Development
the magnitude of the financial and institutional efforts
required and the slow pace of improvements recorded Long in gestation, the presidential
so far, however, it is unlikely that Angola will achieve elections – initially scheduled for September 2006 and
the Millennium Development Goal (MDG) of reducing now unlikely to be held before mid-2008 – are supposed
by half the percentage of people not having access to to constitute a milestone in national reconciliation and
safe water and sanitation. the consolidation of democratic institutions. The basic
procedures are now in place following the establishment
The Water Law provides for the creation of water of a national electoral commission, completion of the
utilities (empresas de agua) for water treatment and electoral census and of the corresponding voter registry,
distribution at provincial level. Although the target is and the courts’ ruling that President Eduardo dos
to create one empresa per province by 2010, only a few Santos can serve three consecutive terms of office.
small urban centres have already created their water Reasons for the delays of the process include abundant
companies, apart from EPAL in Luanda. The World technical problems (to name just one, the size of Angola’s
Bank’s Urban Rehabilitation and Environment Project population is unknown), friction within the ruling
for Benguela and Lobito Province (PRUALB) led to Movimento Popular de Libertação de Angola (MPLA)
the establishment of such companies for the cities of and the difficulty in building the necessary trust between
Lobito and Benguela, and in Soyo and Caxito private the MPLA and opposition parties. Although the MPLA
companies owned by Angolans were given licences to seems sure to remain in power, in each of the opposition
operate the water system, with the assets remaining parties there are separate fringes that, despite the
the property of the state. As a matter of fact, although authorities’ efforts to co-opt them, may refuse to
the huge investments required for the rehabilitation and acknowledge the verdict of polls and stir up ethnic

Angola
tensions. In fact, the peace agreement reached in mid- Programme, government has had to take responsibility
2006 with the secessionist movement in Cabinda for responding to food crises, which it seems to be
(Frente para a Libertação do Enclave de Cabinda – doing rather effectively.
FLEC), which would include the appointment of new
vice-ministers in some areas, was quickly denounced The poverty rate was estimated at 68 per cent in
by some FLEC leaders who were excluded from the deal. 2000/01, with 28 per cent of the national population
living in extreme poverty. Inequality in income
In a post-conflict environment, it is very difficult distribution is among the highest in the world (62 per
for civil society organisations to exercise critical cent), and it is on the rise. In Luanda, the striking
surveillance over governments’ deeds, and Angola clearly wealth of a small minority stands in sharp contrast to
is no exception. The MPLA extends its control over state the harsh poverty of the large majority, a phenomenon
resources to the media, including radio stations and the that is certainly a root cause of widespread frustration
press, while the number of people displaced during and a rising crime rate. Although Angola enjoys one
the hostilities who have not yet regained their homes of the highest rates of per capita GDP growth in the
is estimated to be 450 000. world, there are few indications that the country will
achieve any of the MDGs by 2015. This predicament
Despite the progress achieved since the end of the underscores the responsibility of the government and
civil war, progress towards good governance is slow the private sector, domestic and foreign, to do more
and corruption remains endemic. Transparency to foster human development together with growth.
International has ranked Angola at 142nd on the Implementation of the interim Poverty Reduction
Corruption Perception Index. Although small Strategy Paper (drafted in 2004 and never formally
improvements towards democratisation have been approved) would support the social sectors, which still 119
recorded, the parliament does hardly anything to check receive a very small share of the national budget.
the government’s actions and counter balance the
overwhelming power of the presidential elite. In Despite the end of the war, the living conditions of
February 2006, Angola ratified the United Nations the Angolan population have been deteriorating in
Convention against Corruption, which now requires recent years, life expectancy is only 40 years (UNFPA,
domestic legislation to be implemented. 2005) and health indicators are among the worst in
the world. The under-five child mortality rate rose from
Indicators of living standards are of poor quality and 250 per thousand in 2001 to 260 per thousand in 2004,
often rather outdated. The last household spending the second highest rate in the world, while maternal
survey, covering only 8 provinces out of 16, dates back mortality (1 400 to 1 700 per 100 000 births) also
to 2001, and the last household living conditions survey remains very high because of the very low rate of assisted
was conducted in 2002. The latter, which is believed deliveries, which decreased from 24 per cent in 2001
to be more reliable than the former, sets the urban to 22.5 per cent in 2003. The incidence of malaria,
share of the population as among the highest in Africa. which is one of the most frequent causes of child and
Rapid urbanisation has had a number of negative maternal death, increased in the 2000-03 period,
consequences, from the deterioration of living afflicting 22 per cent of the population as against 16 per
conditions in overcrowded urban and peri-urban areas cent in 2000. Other major causes of death are diarrhoea
to the abandonment of the countryside and, in and respiratory diseases. Vaccination coverage for infants
consequence, of many agricultural activities. Since the is rather low, ranging from 75 per cent for tetanus to
population in rural areas is mainly composed of children 46 per cent for polio, and 43 per cent of routine
and the elderly, food insecurity is an issue (in early Expanded Programme on Immunisation (EPI)
2006, an estimated 800 000 people experienced food vaccinations are financed by the government (UNICEF,
shortages before the main harvest). With the progressive The State of the World’s Children 2006). Another
withdrawal of emergency NGOs and the World Food indication of the progressive deterioration of the living

Angola
conditions of Angolans, especially in urban areas, is the schools. The main innovations brought about by the
severe cholera epidemic that struck Luanda and other reform include the restructuring of the school system with
towns in 2006 in 10 of the 16 provinces, the illness the creation of a compulsory primary school of six years
having been transmitted through contaminated water. (ensino primario), updating of the curriculum and teaching
The epidemic affected 56 213 people between February methods (using a child-centred methodology), and a
and October, and caused more than 2 300 deaths. maximum pupil/teacher ratio of 35.
Many obstacles hamper progress in health services The demand for education exceeds supply and is
quality and delivery. These include the low priority rising. The evidence for this is a gross enrolment rate
given to primary health care by the government, above 100 per cent, whereas net enrolment remains very
insufficient numbers of qualified staff, inefficient low (around 50 per cent in 2003), at least when
co-ordination mechanisms between different levels of compared to other African countries. Access remains
the public administration and with other sectors (as well problematic for many Angolan children, as only 22 per
as donors), and inefficient management structures. cent of children enter primary school at age six. The
The Ministry of Health is still to approve a national reasons for this are manyfold. Since the system is
policy and a medium-term strategy that could provide decentralised, access to schooling and the quality of
guidance on tackling vertical programmes. teaching are not uniform, and in general rural areas suffer
from a lack of financial resources, resulting in fewer
HIV/AIDS prevalence is officially one of the lowest schools and less well-trained teachers. In particular,
in the region (2.7 per cent according to 2005 local the expansion of the education system has been more
estimates) owing to the country’s isolation during the rapid in the littoral area, which accounted for more than
120 years of war. However, the lack of statistical information 60 per cent of primary pupils, as against almost 39 per
and poor quality of surveillance centres suggest that cent in the central areas in 2004. The quality of teaching,
actual HIV/AIDS prevalence might be much higher. although superior in urban areas, remains very poor.
Moreover, it seems that the national rate masks large Nevertheless, the social context is crucial for educational
regional disparities: border areas, where international achievement, and living conditions are often worse in
mobility is easier, exhibit prevalence rates as high as peri-urban areas than in rural areas – hence the low levels
10.4 per cent (e.g. Cunene province). Hence, the of learning achievement recorded in some areas of
increased openness of the country, due to political Luanda. Finally, although schooling is supposed to be
stabilisation and peace, could cause an increase in the free of charge, in most cases families are obliged to pay
national rate, especially when one considers that the a fee to the teacher in order to let the child attend
population has limited knowledge of the illness and its school, and learning materials are rarely provided for
transmission channels. free. The result of all this is very low achievement rates
(30.6 per cent in 2003), high repetition rates (26.3 per
On the positive side, some progress has been recorded cent in 2003) and high dropout rates. In its Poverty
in education. Since the end of the war in 2002, Reduction Strategy Paper, the government has set
government efforts to increase school ambitious objectives, although the budget share allocated
enrolment – through the construction and rehabilitation to the education sector still remains inadequate (7.14 per
of schools and the recruitment and training of cent in the 2005 budget).
teachers – have led to a measurable increase in enrolment
rates. Since 2003, the government has continued the
recruitment campaign, and the number of teachers at
the primary level is estimated to be around 80 000. In
2006, a reform of the public education system was finally
implemented nationwide, after an initial experiment
with a pilot project started in 2003 in 5 per cent of

Benin
Porto-Novo
key figures
• Land area, thousands of km2 113
Benin
B ENIN HAS EXPERIENCED A GRADUAL slowdown in cent in 2007 and 2008 respectively. However, improving
growth since 2001, from 6.2 per cent in 2001 to 2.9 per performance in coming years will be highly dependent
cent in 2005. This has been caused by low cotton on the ability of the Beninese economy to diversify its
prices, high oil prices, appreciation of the CFA franc production. At present, the economy relies too heavily
in real terms and the need to restructure the principal on the cotton sector in a relatively unfavourable
sectors of the economy (cotton, oil, electricity and international context, as well as on the activity of the
telecommunications). Nevertheless, indicators for 2006 Port of Cotonou, although Donors released important
improved in comparison with 2005 and the overall relations with neighbouring resources to finance
outlook is quite positive. For example, inflation has Nigeria have not entirely infrastructures and social
slowed down, public and private investment ratios returned to normal. programmes but the economy
have increased and the trade deficit has been reduced. is still too dependent on cotton
In spite of electoral expenditures, the budget deficit in Benin faces a number of and the Port of Cotonou.
2006 fell by 0.2 per cent. GDP growth increased from challenges, the greatest of
2.9 per cent to 4.5 per cent between 2005 and 2006, which is the fight against corruption and poverty. The
with predictions for increases of 4.5 per cent and 4.8 per newly-elected President confirmed that improvements
123
■ Benin - GDP Per Capita (PPP in US $) ■ West Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Benin - Real GDP Growth (%)
7 3500
6 3000
5 2500
4 2000
3 1500
2 1000
1 500
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and INSAE (National Institute of Statistics and Economic Analysis) data; estimates (e) and projections (p) based on authors’
calculations. http://dx.doi.org/10.1787/801167070428

Benin
in governance and transparency were key elements in poor production diversification and the dependence of
his political programme and these were mentioned as trade on the status of relations with the Nigerian
priorities in the Poverty Reduction Strategy Paper authorities.
(PRSP). Corruption is a perpetual problem affecting
the business climate and Benin’s Corruption Perception GDP grew from 2.9 per cent in 2005 to 4.5 per
Index ranking in 2006 was even worse than it was in cent in 2006. The poor result in 2005 was mainly
2005. Furthermore, the country has fallen behind in linked to the significant fall in cotton production.
the implementation of structural reforms. The However, a revival in cotton production and the gradual
privatisation programme is making little progress and recovery of re-exporting activities enabled the country
the cotton, electricity and telecommunications sectors to register 1.6 percentage-points of additional growth
require profound restructuring. in 2006. Growth is expected at 4.5 per cent and 4.8 per
cent in 2007 and 2008 respectively, subject to rapid
As regards social performance, Benin remains one resumption of trade with Nigeria and satisfactory
of the poorest countries in Africa, with a per capita GDP continuation of the present restructuring of the cotton
at purchasing power parity of $1 159 in 2006, as against sector.
an average of $2 844 in Africa. Despite some recent
improvements, health and education conditions are The primary sector, which accounted for 35.9 per
often deplorable. Expenditure on infrastructures has cent of GDP in 2005 and employed almost 54 per cent
increased significantly and donors have allocated large of the population, is dominated by cotton production.
amounts of funding in this respect. The Millennium The cotton sector represents around 10 per cent of
Challenge Account (MCA) recently made a grant of GDP and approximately 350 000 cotton producers
124 $307 million to Benin to help it achieve the Millennium support almost 40 per cent of the population of Benin.
Development Goals (MDGs). In the areas of water However, recent developments have not been very
and sanitation, the goals of access to both by 68 per favourable. Cotton production only reached
cent and 51 per cent respectively of the total population 190 700 tonnes for the 2005/06 harvest, compared
stand a relative chance of being achieved by 2015, due with 427 000 tonnes for 2004/05. This fall is related
to the fact that financial flows and amounts invested to delays in payments to farmers and insecticide
by donors are substantial. In 2004, the coverage rates distributors and to the uncertainties linked with the
were 48 per cent for drinking water and 40 per cent privatisation programme and the sector’s future.
for sanitation. Production has been damaged by recent insect
infestations, together with the poor quality or
From the political point of view, 2006 was notable unavailability of pesticides and insecticides. Production
not only for the smooth running of the presidential was originally expected by the Cotton Inter-Professional
elections, but also for the victory of independent Association (AIC) to reach 300 000 tonnes, but is
candidate Boni Yayi bringing into question the influence now not expected to exceed 250 000 tonnes in
of traditional political parties. The legislative elections 2006/07. Moreover, producer prices have fallen along
of 2007 and the district elections of 2008 should enable with world market prices. After long negotiations
Benin to take stock of these new internal political trends. between the various actors in the sector, prices for
2006/07 were set at 170 CFA francs per kilogramme
for first-grade quality cotton, compared with 185 CFA
Recent Economic Developments francs the year before and at 120 CFA francs for
second-grade quality cotton, compared with 135 CFA
The two main sectors that generally determine francs in 2005/06. These prices are nevertheless higher
Benin’s growth rate are agriculture (the cotton sector) than those of neighbouring producer countries and
and services (the activity of the Port of Cotonou). The spinning enterprises in Benin have been worried about
principal weak points of the Beninese economy are potential losses.

Benin
Other services
Agriculture
18.8%
24.8%
Government Services 11.7%

11.1% Forestry, livestock and fisheries
18.7% 0.3% 8.7%

5.8% Manufacturing
Trade
Energy and construction
Other industry
Source: Authors’ estimates based on INSAE data.

http://dx.doi.org/10.1787/577244142618
The cotton sector is in need of restructuring. almost 49.2 per cent of GDP and employed 36 per cent
Primarily, the government should continue to withdraw of the active population in 2005. Nigeria’s partial
from the sector, particularly from the public ginning cancellation in November 2004 of the ban on imports
company Sonapra (National Company for Agricultural of products from Benin permitted an upturn in re-
Promotion). The government is generally responsible export activities, but administrative difficulties remain.
for ensuring respect for property rights and for Furthermore, in spite of an increase in goods traffic at
competition in the sector. It has therefore to establish the Autonomous Port of Cotonou (PAC) due to
transparency and a genuine market system for all aspects problems with insecurity, rates of return have remained
of supply, credit and sales. The government has finally fairly low (3 per cent in 2005, compared with 5 per 125
promised to reimburse the payment arrears due to cent in 2004). Moreover, the Port of Cotonou is facing
cotton producers and demonstrated its goodwill by increased competition from the Port of Lomé (Togo).
paying out 2.9 billion CFA francs in October 2006 Nevertheless, the volume of goods traffic increased in
(equivalent to one-fifth of the total amount). 2005 by 29.8 per cent and the total value of goods traded
was 12.9 billion CFA francs. During the first eight
In 2005, the secondary sector, representing 14.8 per months of 2006, trade was equal to the first eight
cent of GDP and 10 per cent of the active population, months of 2005, but the destinations for traded goods
made a negative contribution to GDP growth. Apart changed. The volume of goods traffic with Togo fell
from cement and import-substitution products for by 67.7 per cent, while it increased with the landlocked
basic imports (such as staple food products), industrial countries of Mali, Burkina Faso and Niger by 133.4 per
production mainly consists of cotton transformation cent, 52.6 per cent and 25.5 per cent respectively. The
industries. In 2005, there was a fall in the value-added volume of official goods traffic with Nigeria increased
of manufacturing industries due to the reduction in at a slower rate by 10.5 per cent. Beninese enterprises
cotton production, but also due to increased still face difficulties in exporting to Nigeria, even after
competition from Asian textile products. Creation of fulfilling all of the required conditions. They are required
a new spinning enterprise is planned however, which to certify the origin of their products and to register
should begin production in June 2007. Only the with ECOWAS (Economic Community of West
construction sector and the cement industry showed African States). Re-export activities represented 40.5 per
positive results, having benefited from the principal cent of total exports in 2005, compared with 41.2 per
donors’ projects for infrastructures, especially for road- cent in 2004 and 52.8 per cent in 2002.
construction.
Besides these sectoral developments, private
The tertiary sector, consisting mainly of trade with consumer and investment demand both remained fairly
neighbouring countries and transport, contributed weak in 2005. The total investment rate stood at 18.2 per

Benin

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 4.7 8.0 25.0 10.0 11.0
Private 13.4 10.2 4.5 5.4 5.9
Consumption 87.3 88.8 3.2 4.6 4.9

Public 13.1 12.0 -1.0 4.6 4.3
Private 74.1 76.8 3.7 4.6 4.9
External sector -5.4 -7.0

Exports 27.1 21.6 5.0 6.0 6.8
Imports -32.5 -28.5 5.2 7.0 8.1
Source: National authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/508688751685
cent, as against 20.7 per cent in 2004, due to a reduction In 2006, Benin complied with four out of five of
in private investment. The growth rate of private the first-level convergence criteria of the West African
investment by volume is nevertheless expected to Economic and Monetary Union (WAEMU), as against
accelerate slightly in 2007 (5.4 per cent) and 2008 three in 2005. The country’s inflation rate was less
(5.9 per cent), in reflection of long-awaited than 3 per cent in 2006 (at 2.4 per cent), whereas it
126 improvements in the business climate and economic was 5.4 per cent the previous year. On the other hand,
governance. The upturn in total investment in 2006 to Benin did not succeed in improving sufficiently the basic
20 per cent of GDP was chiefly due to public investment, budgetary balance as a percentage of GDP. This ratio
with a growth rate by volume of 25 per cent. In the should normally be positive or zero, but it was -1.1 per
external sector, exports are expected to stabilise at cent in 2006, as against -1.7 per cent in 2005. Benin
approximately 21.6 per cent of GDP as trade relations achieved compliance with only one second-level
between Benin and Nigeria return to normal. criterion out of four. The investments-to-internal-
resources ratio as a percentage of GDP was higher than
20 per cent (22.8 per cent in 2005 and 23.8 per cent
Macroeconomic Policy in 2006). The wage bill as a percentage of fiscal revenue
ratio was 37.7 per cent in 2006 (compared with an
As regards macroeconomic policy, Benin has objective of 35 per cent). The current account deficit
continued to pursue the reform programme begun (excluding official transfer payments) amounted to
with the IMF under the Poverty Reduction and Growth 7 per cent of GDP, whereas the threshold is 5 per cent
Facility programme (PRGF) for the 2005-08 period. and the tax burden, which was 15 per cent in 2006,
At the time of the first review, Benin had not complied would have needed to be above 17 per cent to achieve
with the condition forbidding the accumulation of compliance.
new payments’ arrears1. Nor did it comply with the
condition forbidding new non-concessional borrowing; Fiscal Policy
a loan totalling $31 million2 over six years was taken
out with a Chinese bank by the public The main objective of budgetary policy is to generate
telecommunications company, Bénin Telecoms. additional tax revenue and restrict current expenditure,
1. Payment arrears amounted to $62.6 million in 2005.

2. The rate applied for converting CFA francs to dollars is 100 CFA francs = $0.20.

Benin

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 12.6 15.1 14.6 14.5 14.6 14.4 14.5
Grants 3.0 1.7 1.9 1.7 2.3 2.7 2.9
Interest 1.0 0.6 0.3 0.3 0.2 0.3 0.3
Primary balance 3.0 -1.3 -1.4 -2.6 -2.5 -2.4 -2.6

Overall balance 2.0 -1.9 -1.7 -2.9 -2.7 -2.7 -2.8
http://dx.doi.org/10.1787/522276267850
in order to release capital for investment in priority of GDP between 2005 and 2006. However, while
sectors. Until recently the budget deficit, mainly current expenditure represented a smaller proportion
financed by foreign borrowing, amounted to less than of GDP (14.1 per cent in 2006, as against 15 per cent
2 per cent of GDP. The budget situation deteriorated in 2005), capital expenditure increased. It rose from
in 2005 and 2006 following the agreement to subsidise 6.3 per cent in 2005 to 7.6 per cent in 2006 and is
the cotton sector, expenditure on poverty reduction and expected to represent an increasing proportion of GDP
the organisation of the presidential elections. The total in 2007 (7.9 per cent) and 2008 (8.3 per cent) due to 127
budget deficit went up from 1.7 per cent in 2004 to funds released by debt relief. The government is planning
2.9 per cent in 2005. It then fell to 2.7 per cent in 2006. major investment in social sectors and infrastructures.
It is expected to remain at around 2.7 per cent of GDP However, the organisation of new elections in 2007 and
in 2007 and 2008. 2008 is expected to put a strain on current expenditure,
predicted to be approximately 14 per cent of GDP.
Revenue increased due to reforms in fiscal Donors are calling for the restructuring of salaries in
administration and tax collection as well as an increase public services so that salary increases are merit-related
in grants, which went up from 1.7 per cent of GDP rather than standard practice. Public-sector salaries are
in 2005 to 2.3 per cent in 2006. These are expected therefore expected to represent a reduced proportion
to account for an even greater proportion of GDP in of GDP, at 6.2 per cent in 2007 and 6.1 per cent in
2007 (2.7 per cent) and in 2008 (2.9 per cent). However, 2008, as against 6.3 per cent in 2006.
in order to limit the impact of the rise in oil prices on
consumer prices, the authorities have eliminated the Monetary Policy
specific tax on oil and gas. Revenue increased from
18.4 per cent of GDP in 2005 to 19 per cent in 2006 Benin’s monetary policy follows that of the Central
and this is expected to continue to rise in 2007 (19.3 per Bank of West African States (CBWAS) whose main
cent) and in 2008 (19.5 per cent). These estimates objectives are to guarantee price stability and parity
depend on the current implementation of financial between the CFA franc and the euro. Policy has been
administration reinforcement, on the introduction of quite strict for many years. Monetary parity has not
“one-stop” customs clearance procedures and on the changed since 1994. In August 2006, CBWAS raised
strict monitoring of tax exemptions. its refinancing rate (4 per cent since March 2004) to
4.25 per cent in order to reduce inflationary pressures.
Expenditure is expected to increase in 2007 and In Benin, following the rise in petroleum-product
2008, after rising from 21.3 per cent to 21.8 per cent prices, the rate of inflation was 5.4 per cent in 2005,

Benin
as against 0.9 per cent the preceding year. In 2006, sector in the economy, providing both internal and
inflation slowed down to 2.4 per cent because of the international transit services to neighbouring landlocked
fall in food-product prices. It is expected to be even more countries (Burkina Faso, Niger, Mali) and neighbouring
moderate in 2007 and 2008, with estimations of 1.8 per coastal countries (mainly Nigeria). Trade with Nigeria
cent and 2.3 per cent respectively. At the end of 2006, has been marked by complaints by Beninese private
Benin’s foreign currency reserves at the CBWAS equalled transport operators about non-observance by the
10 months of imports. Nigerian authorities of trade regulations signed by both
countries. However, efforts presently under way to
Private-sector credit grew by 20.2 per cent in 2005, redefine the common border between Nigeria and
compared with 4.5 per cent in 2004. Although the Benin and to relax the restrictions on Beninese imports
financial system lacks depth, the majority of banks respect into Nigeria, should allow trade relations between the
prudential standards and bad debts represented only two countries to return to normal.
10 per cent of banking assets in July 2006. At that time,
there were 12 commercial banks and 2 leasing companies In 2005, China was the leading export destination
operating in the market, along with approximately 100 country and the principal provider of Beninese imports.
formal micro-finance institutions. Benin possesses the China accounted for 44.2 per cent of Benin’s exports
largest number of micro-finance institutions in the West and 39.1 per cent of imports. France is the country’s
African Economic and Monetary Union (WAEMU). second trade partner and its principal bilateral donor.
The sector consists of two main networks: first, the
mutualistic activity of the Federation of agricultural Benin exports mainly cotton and textile products
savings and loan co-operatives (FECECAM), by means (which represent 72 per cent of foreign exchange
128 of which collected savings are converted into loans and revenue) and re-export products. In return, it imports
second, direct-credit institutions which obtain funding food products (31.2 per cent of total imports in 2005)
from the financial markets. At an interest rate of 2 per and petroleum products (14.7 per cent of total imports
cent per month, the cost of micro-finance remains far in 2005). However, it is difficult to estimate goods
below the market price. Nevertheless, some sectors such flows due to the large amount of illegal traffic with
as handicrafts have not benefited much from the loans Nigeria. Trade liberalisation is much more advanced in
provided; the financing of agriculture and trade has Benin than in Nigeria, which applies high tariffs and
received more priority. No Beninese company is quoted protectionist import barriers. This creates a strong
on the West African stock exchange. incentive to smuggle goods between Nigeria and Benin.
For example, the Port of Cotonou is the principal port
External Position of transit for second-hand vehicles in West Africa. The
majority of vehicles are destined for Nigeria although
Due to its geographical position, Benin plays an no declaration to this effect is made when they arrive
important role in regional trade. Transport is a key in Benin. Conversely, Benin illegally imports most of

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -6.4 -7.8 -6.8 -6.7 -6.5 -5.9 -6.1

Services -2.0 -2.3 -1.8 -1.3 -1.2 -0.9 -1.1
Factor income -0.5 -1.1 -0.9 -0.9 -0.9 -0.9 -1.0
Current account balance -5.4 -9.3 -7.1 -4.5 -4.4 -4.2 -4.6
http://dx.doi.org/10.1787/447086538244

Benin

■ Debt/GDP ——— Service/X
80
70
60
50
40
30
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF. 129

http://dx.doi.org/10.1787/318051655382
its petroleum products from Nigeria, where prices are 4.2 per cent and 4.6 per cent in 2007 and 2008
highly subsidised. respectively. As regards the capital account, foreign
direct investments were poor, amounting to only
Following the downturn in production in 2006, $21 million in 2005, as against $64 million in 2004.
cotton exports fell by approximately 25 per cent. In spite of the country’s political stability, investors are
However this decline was compensated by improved discouraged from placing funds in Benin due to bad
performance in the exports of cashew nuts and re- governance and the uncertainties that affect the two
export products. Total official exports increased slightly, principal economic activities, primarily a climate of
from 13.1 per cent of GDP in 2005 to 13.6 per cent unpredictability in the cotton sector and relations with
in 2006; they are predicted to rise to 13.9 per cent in Nigeria concerning re-exports.
2007 and 14 per cent in 2008, provided that cotton
exports recover. Imports made an increased contribution In March 2003, Benin reached the completion
to GDP between 2005 (19.8 per cent) and 2006 point of the Heavily Indebted Poor Countries (HIPC)
(20.1 per cent) due to the oil-bill burden; they are Initiative and benefited from total debt relief amounting
expected to remain at about 20 per cent of GDP in the to $460 million. Benin also recently benefited from an
years to come. The trade deficit diminished during the amount totalling over $1.14 billion from the Multilateral
period 2002-07. It stood at 6.5 per cent in 2006, as Debt Relief Initiative (MDRI). The IMF cancelled
against 6.7 per cent in 2005 and is expected to decline $62.6 million; the World Bank, $710 million; and the
further to 5.9 per cent in 2007. Due essentially to a African Development Bank, $368 million.
reduction in the trade deficit, the current account
balance deficit has continued to diminish during the The ratio of external public debt to GDP was only
period 2003-07. It went down from 4.5 per cent in 2005 23.9 per cent in 2006, compared with 47.7 per cent
to 4.4 per cent in 2006 and it is expected to reach the preceding year. Debt service represented 15.3 per

Benin
cent of exports of goods and services in 2006, as against Electricity is imported from Ghana and Côte d’Ivoire
14.8 per cent in 2005. It is expected that these two ratios by the Electrical Company of Benin (CEB), which has
will continue to decline in 2007 and 2008. experienced cash-flow problems. In addition to these
difficulties, suppliers have reduced their deliveries by
43 per cent since May 2006 because of low water-
Structural Issues levels in the principal dams, gas-supply problems in Côte
d’Ivoire and the negative effects of increased oil prices
Recent Developments on electricity production. However the regional
integration project for West Africa should improve
Benin offers considerable advantages for private- power distribution with the installation of a high-
sector development, namely political stability, a viable voltage electrical line running along the coast and
commercial banking sector and existing port and airport linking up enterprises in Togo/Benin, Côte d’Ivoire
infrastructures. Benin’s geographical position also and Nigeria by 2007. This line has the potential to
favours its role as gateway and best through-route to become a true regional electrical network by 2020.
the hinterland countries (Niger, Burkina Faso) and This first phase of integration will end also with the
Nigeria. Benin’s private sector succeeded very early on construction of a West African gas pipeline which will
in taking advantage of these opportunities and in enable Ghana, Togo and Benin to receive supplies of
confirming the country’s position as a hub of the region’s gas from Nigeria.
economy.
Regarding the business climate, the country’s ranking
The authorities have pledged to tackle the cotton, in Transparency International’s 2006 Corruption
130 electricity and telecommunications sectors and the Perception Index went down from 88th place (out of
management of the PAC (Autonomous Port of 159 countries in 2005) to 121st place (out of 163
Cotonou) through a programme of structural reforms. countries in 2006). Promoting governance is one of the
Progress with reforms has nevertheless been slow and strategic lines of the Poverty Reduction Strategy Paper
privatisation has faltered. In March 2006 for example, (PRSP). The new president also announced that one
the privatisation of cotton enterprise Sonapra was of his priorities would be to fight against corruption
postponed until 2007. The privatisation of Bénin and bad governance. Several financial audits have
Télécoms and The Benin Electricity and Water Company consequently been carried out in various ministries
(SBEE) has been postponed to 2008/09. Moreover, and public services. These showed that corruption was
Sonacop (Benin Petroleum Company) has suffered extensive and were followed up by sanctions, sending
from operating and governance problems since out a strong signal that the authorities are determined
privatisation in 1999, with the result that the Beninese to fight against this affliction. In 2006, two former
people have turned to the black market for their directors and several members of staff of public
petroleum-product requirements. In March 2006, companies were arrested for embezzlement.
approximately 75 per cent of demand was met by illegal
imports from Nigeria, at prices lower than those on the Access to Drinking Water and Sanitation
official market. However, the government (which holds
45 per cent of Sonacop) decided to regain control of Benin possesses substantial water resources, but
the enterprise in order to take in hand petroleum- these are unequally distributed throughout the country.
supply difficulties and plan for a more successful Resources and potential waterways are mainly located
privatisation. in the south, with lakes and lagoons constituting
important reservoirs of water, while the centre and
In the energy sector, the country suffered in 2006 north of the country suffer from a water resource deficit.
from the disruption of electricity supplies and the Average annual rainfall in Benin is 800 mm in the
Beninese people had to face frequent power cuts. north and 1 500 mm in the south. The coastal

Benin
sedimentary basin, covering 10 per cent of the total area in rural areas. While only 2 per cent of the rural
of the country, holds about 32 per cent of potential population had access to sanitation in 1990, the rate
groundwater reserves. had reached 19 per cent by 2004. For access to drinking
water, the rate increased from 35 per cent in 1990 to
The exploitation of water resources remains limited 41 per cent in 2004. Nevertheless, the inhabitants of
and utilisation of groundwater from basal zones where many villages still obtain supplies from polluted surface-
borehole flows are low is difficult. Overall, there is a water sources.
great deal of pressure on existing water resources, in both
urban and rural areas. Access to drinking water by the urban population
was estimated at 57 per cent in 2004. However,
The water sector is under the control of the Ministry drinking-water consumption is concentrated in the
of Mines, Energy and Hydraulics. In urban areas, the four large towns in the country (Cotonou, Porto-Novo,
National Water Company of Benin (Soneb) is an Parakou and Abomey-Bohicon) which alone consume
autonomous public enterprise with responsibility for approximately 80 per cent of the water distributed in
drinking-water supply. The General Directorate of urban areas. Other towns have a fairly low access rate,
Hydraulics (DGH) has this responsibility in rural areas, although this varies from one town to another and
but is essentially involved in infrastructure projects, many town-dwellers resort to using alternative water-
since management is the responsibility of municipal supply sources such as wells, rivers, backwaters and
bodies and consumer associations. Under the supervision storage tanks.
of the Ministry of Public Health, the Directorate of
Hygiene and Basic Sanitation (DHAB) shares the The situation regarding sanitation is more critical.
responsibility for sanitation in both urban and rural areas The waste-water evacuation rate is estimated at 0.2 per 131
with Soneb and the communities themselves, as well cent for the country as a whole. This means that
as with certain departments of the Ministry of independent sanitation is the most common method
Environment, Housing and Town Planning and of the for dealing with waste water. However, this randomly
Ministry of Public Works and Transport. The Beninese discharged water pollutes the environment and
authorities are unwilling to privatise the water sector groundwater tables and creates breeding grounds for
since they regard it not just as a commercial sector, but mosquito larvae and other vectors of disease. The
above all as a public utility. In this sector, social situation is of particular concern in Cotonou because
imperatives have taken precedence over considerations of high population density, the extremely hydromorphic
of mere financial profitability. nature of the ground and the shallowness of the
groundwater table (between 0.5 and 3 metres from
Figures for 2004 show a coverage rate of 48 per cent the surface). The situation regarding excreta
of total population for access to drinking water (37 per management is critical, particularly in the smaller
cent in 1990) and 40 per cent for access to sanitation towns. Only the principal towns (Cotonu, Abomey-
(14 per cent in 1990). The MDG could therefore be Calavi, Porto-Novo, Parakou, etc.) possess a sewer
achieved by 2015 if the present financial flows continue network and have a coverage rate of over 60 per cent.
and if the country continues to increase its coverage The overall access rate to adequate facilities for the
rates according to present trends. The goal is to achieve evacuation of excreta was estimated at 32.1 per cent
access to drinking water for 68 per cent of the population in 2001 (61.6 per cent in urban areas and 14 per cent
and sanitation for 51 per cent by 2015. Financing in rural areas).
requirements to achieve this are estimated at
$26.8 million per annum for the water sector and In the smaller towns and in rural areas, a national
$18.7 million per annum for sanitation. Substantial strategy was adopted in the 1990s. Most of the measures
progress has been made in access to sanitation and to come within the framework of the Programme for
a lesser extent in access to drinking water, particularly Support to the Development of Drinking Water Supply

Benin
and Sanitation in Rural Areas (PADEAR). This based on economics is essential, in order to ensure that
programme is backed by several donors, who will most management of Soneb is economically viable.
probably be the main source of financing in future years.
At national level, the various institutions in charge Political Context and Human
of the supervision, exploitation and protection of Resources Development
resources, as well as the distribution of water and
prevention of water-related hazards, have not always The country has been politically stable for many
collaborated sufficiently well with each other; policies years. Benin was one of the first countries in Africa to
and sub-sectoral strategies have not possessed any overall set up a liberal democratic political regime with the
coherence. The country has recently embarked upon separation of powers and a full multiparty system.
an ambitious process of reforms within the framework Freedom of expression is ensured through participation
of Integrated Water Resources Management (GIRE). by a pluralistic press in the debate on all socio-economic
GIRE encompasses updating water laws and the creation development issues. The political scene was changed
of a co-ordinating unit for the sector, as well as for the by the presidential election in March 2006, which was
Water Board which is responsible for defining a national won by independent candidate Boni Yayi; the traditional
strategy for the sector, as well as setting up four inter- parties lost power and their principal leaders were
district agencies throughout the country. Prior to this, excluded from the new government team. The country
Benin possessed a set of legislative texts relating to is presently preparing for the general election of 2007
water sector and sanitation management that no longer and the district elections of 2008. These representative
adequately reflected reality. For example, water law elections should provide an opportunity to evaluate
132 was inaugurated by an act of September 1987, but the influence of the various parties.
there were never any subsequent decrees to apply it.
The recent extensive legislative reform concerning A new Poverty Reduction Strategy Paper (PRSP)
water now makes it necessary for related issues be taken is needed for the period 2006-09, since the term of the
into account, notably decentralisation and devolution, previous PRSP ended in 2005. However, delays in its
integrated resources management, contracting preparation will probably lead to similar delays in
procedures and the reinforcement of the role of women implementing the strategy for the fight against poverty.
and the private sector. It seems very unlikely that the country will achieve
any Millennium Development Goals (MDGs) other
The most significant obstacles to the development than those relating to water and sanitation. Considerable
of the water and sanitation sectors include the progress has nevertheless been made recently and donors
obsolescence of drinking-water supply systems, the have pledged substantial resources. In October 2006,
increasing quantity of rehabilitation works that are a grant of $307 million (7 per cent of GDP) was
needed and especially, the high costs of water and awarded to Benin by the Millennium Challenge
sanitation equipment. Moreover, complex procurement Account (MCA) for projects in education, health and
procedures for goods, works and services create real infrastructures; this grant is expected to be disbursed
bottlenecks in project implementation. One of the over a period of five years.
greatest challenges in urban areas is the question of
billing and the financing of Soneb. The pricing system Almost 28.5 per cent of the population of Benin
for water consumption is inappropriate, as sale prices was living below the national poverty line in 2002 (as
do not cover the real costs of production and against 29.6 per cent in 1999/2000). Although the
distribution. The system, which applies two price average has decreased, inequality among the poor
brackets, is based on a national equalisation scheme to nonetheless increased between 1999 and 2002 due to
guarantee the continuity of drinking-water supply to an increase in the severity of poverty in urban areas.
small towns and villages. Setting up a pricing system Generally, however, monetary poverty was more

Benin
prevalent in rural areas (31.6 per cent in 2002) than law also authorised ownership of means of production
in urban areas (23.6 per cent in 2002). Approximately for women. The abolition of school fees for girls is also
15 per cent of the population of Benin suffered from one of the supplementary measures that has been taken
hunger during the period from 2000-02. to promote gender equality. In reality, however, the
female population of Benin remains somewhat
In the social sector, years of under-investment have marginalised. Almost 97 per cent of working women
led to completely ineffective education and health are part of the informal economy, mostly in rural areas.
systems. The 2006 Human Development Index ranked Moreover, the illiteracy rate for women was 71.6 per
the country 163rd out of a total of 177 countries. One cent in 2005, compared with 41.2 per cent for men.
challenge is the level of demographic pressure, given
that the fertility rate was still 5.6 children per woman Benin is also known to be a hub for child trafficking.
in 2005 and the population increased by 3.2 per cent Because of persistent poverty, poor parents entrust
during the period 2000-05. Consequently more than their children to “smugglers” who are supposed to take
44 per cent of the population is under 15 years old. responsibility for their education, in exchange for
Life expectancy was 53 years for men and 54.5 years amounts ranging from 10 000 to 20 000 CFA francs
for women, for the period 2000-05. (EUR 15 to 30). According to reports by the United
Nations Children’s Fund (UNICEF), these children are
Years of laxity in the health sector have translated then sold on for ten times these amounts to large farms,
into poor indicators, with the root cause of numerous particularly cocoa and sugar-cane plantations in
diseases and epidemics being deplorable socio- Cameroon, Gabon, Côte d’Ivoire and Nigeria.
environmental and living conditions. According to
data provided by the national health information system, Significant progress has been made in education at 133
the five principal disorders in 2002 were: malaria (37 per all levels of the educational system due to the efforts
cent); acute respiratory infections (16 per cent); gastro- of the authorities and the financing opportunities
intestinal diseases (8 per cent); diarrhoeal diseases (6 per opened up by the Education for All - Fast-Track
cent) and injuries (6 per cent). As regards transmissible Initiative (EFA). The goal is to achieve universal primary
diseases, the Extended Vaccination Programme gave education by 2015. In primary education, the net
good results and lowered infant mortality. In 2003, enrolment rate went up from 45 per cent in 1990/91
for children aged under 5 years, the vaccination coverage to 58 per cent (47 per cent for girls) in 2002/03. Benin
rates were 99 per cent against tuberculosis and 83 per is therefore still far from achieving universal education
cent against measles. Despite these positive results, the and sustained effort will be required with regard to the
infant mortality rate was 100.6 per thousand in 2005. education of girls. Moreover, the results within primary
At the end of 2003, approximately 62 000 adults were education remain poor, with high rates of school year
infected by HIV, of whom more than 56 per cent were repetition (23.6 per cent in 2003) and dropping-out
women. The adult prevalence rate was 1.9 per cent, but (13.5 per cent in 2003). Out of 100 children entering
the growth rate of the epidemic is disturbing. the first year of primary school, only 68 reach the fifth
Approximately 34 000 children had lost at least one year. In secondary education, the net enrolment rate
parent due to the disease. was 20 per cent in 2002/03 (13 per cent for girls). The
gender parity index (which approaches one as parity
In 2002, Benin adopted a National Policy for the is achieved), went from 0.42 in 1997 to 0.48 in 2002/03,
Promotion of Women and since then, numerous thus indicating a slight reduction in the difference
feminist non-governmental associations have been between boys and girls. Due to the low efficiency and
created. In 2003, family law was changed in order to inadequate capacity of state schools, the increase in
conform to the Constitution. The policy established pupil numbers in private education is substantial (from
equality between men and women, prohibited genital about 12 000 pupils in 2001 to over 50 000 in 2003).
mutilations and refused to recognise polygamy. This

.
Botswana
Gaborone
key figures
• GDP per capita, $ PPP valuation (2006/07) 11 611
Botswana
ZAMBIA
ANGOLA
i Strip
Capriv

e Kasane
hob
C
Windhoek O
ka
va
ngo ZIMBABWE
NAMIBIA

Nata Bulawayo
Maun
Lake Ngami
Sua

Francistown

Lake Xau
Ghanzi Sha
Selebi- Phickwe shi
KALAHARI DESERT
po
po
Li m
Sekoma GABORONE

Jwaneng
Kanye
Johannesburg
Tshabong
Cape Town
SOUTH AFRICA
0 100 km

town > l million inhabitants major road main airport
500 000 - 1 000 000 secondary airport

secondary road
100 000 - 500 000 railway commercial port
< 100 000 track petroleum port

fishing port
M ACROECONOMIC STABILITY and prudent use of on mining and has recently initiated new measures to
diamond export earnings have catapulted Botswana, a improve the business climate and export
low-income country half a century ago, to its current competitiveness. The new National
Excessive dependence
status as an upper middle-income country. Real GDP Development Plans (NDPs), the
on the mining sector and
growth has averaged more than 9 per cent annually over budget and the Vision 2016
the HIV/AIDS pandemic
most of the past four decades. Although there was a document have all emphasised the
continues to threaten
lull in economic performance starting in the late 1990s, need to diversify the economy. The
human development
economic growth has picked up in the last two years. other major policy priorities are
and economic growth.
In 2004/05 and 2005/06 real GDP grew by 8.3 per poverty, unemployment and
cent and 4.2 per cent respectively. HIV/AIDS. The strategies identified in the Mid-Term
Review of National Development Plan 9 (NDP9,
Efforts to create a more diversified economy, covering 2003-09) are all aimed at addressing these
however, have so far had little success, with challenges in more innovative ways.
mining – largely diamonds – still accounting for a large
share of domestic output and almost all exports. The The HIV/AIDS pandemic remains the biggest
government remains committed to reducing dependence threat to human development and economic growth
137

■ Botswana - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Botswana - Real GDP Growth (%)
12 14000
12000
10
10000
8
8000
6000
4
4000
2
2000
0 0
1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
http://dx.doi.org/10.1787/844335603130

Botswana
in Botswana. The proportion of people infected with cent in 2004/05, representing a considerable decline
HIV is still one of the highest in the world. The from the 5.6 per cent recorded in the preceding year.
government remains committed to finding innovative Services were the leading sector in 2004/05, notably
ways to address the problem, however, through research, the transport sector, which recorded growth of 5.6 per
early detection, new treatment therapies, free cent, and business services, 4.1 per cent. Agriculture
antiretroviral therapy, free testing and ongoing vaccine grew at a moderate 3.3 per cent while manufacturing
trials. The efforts of Botswana’s government are registered growth of just under 3 per cent.
complemented by the African Comprehensive
HIV/AIDS Partnership, which is a collaborative scheme The mining sector, dominated by diamonds,
between the government of Botswana, the Bill and contributed over 43 per cent to real GDP in 2005/06.
Melinda Gates Foundation and the Merck Foundation. The services sector, which accounts for 38 per cent of
This scheme is expected to continue until 2009. GDP overall, includes general government services
(15.6 per cent of GDP), financial services (9.2 per
cent), and wholesale and retail trade, including hotels
Recent Economic Developments and restaurants (9.1 per cent). Tourism, although it
contributes only around 4 per cent to GDP, continues
Economic growth in Botswana, though on average to be Botswana’s second-largest source of foreign
quite good, has exhibited considerable volatility in exchange earnings after diamonds.
recent years. Real GDP growth accelerated from 3.4 per
cent in 2003/04 to 8.3 per cent in 2004/05, but then Agriculture, which was the largest sector in the
decelerated to 4.2 per cent in 2005/06. The slowdown 1960s, contributed only 2 per cent of GDP in 2005/06.
138 in 2005/06 is, however, the result of appropriate restraint Agricultural production was adversely affected in 2005
in government expenditure and credit to the private by inadequate rainfall and drought, which hampered
sector. Growth is expected to stabilise at the 4 per cent production of food crops. The share of manufacturing
level in 2007 and 2008. in total domestic output has also exhibited a declining
trend. In 2005/06, the share of manufacturing in GDP
The high growth performance in fiscal year 2004/05 was 3 per cent, in contrast to 8 per cent during the
was attributable to the mining sector, which grew by 1970s. Various government initiatives, including those
18.2 per cent during the year, as opposed to just 0.3 per of the Botswana Export Development and Investment
cent in 2003/04. The impressive performance of the Agency (BEDIA), have failed to spur diversification.
mining sector reflected increased diamond production
in the second half of 2004, making up for lower Although the share of total domestic investment
production in the first half of the year. Non-mining declined to 34.8 per cent of GDP in 2004/05, from
GDP, in contrast, grew at the lower rate of 1.9 per 43.2 per cent in the preceding year, largely on account
Other services Agriculture
Government services 3.8%

2.3%
18.1%
Finance and business services 7.5% 41.7% Mining
3.6%
Transport, storage and communications
11.4%
7.7% 3.9%
Trade, hotels and restaurants
Manufacturing
Other Industry

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Botswana
of a 23 per cent decline in private investment, the also declined in 2004/05 but is estimated to have picked
investment-to-GDP ratio is very high in Botswana by up in 2006. Investment, both public and private, is
African standards. The share of private investment in projected to continue to grow strongly at around
GDP has risen dramatically since 1998 and is estimated 8 per cent.
to have recovered strongly in 2006. Public investment

1997/98 2004/05 2005/06(e) 2006/07(p) 2007/08(p)

(current prices)

Public 15.0 9.1 18.0 9.0 8.0
Private 15.1 25.6 15.0 8.0 7.0
Consumption 57.4 50.5 3.1 2.8 2.7

Public 27.1 22.8 4.1 4.1 4.1
Private 30.3 27.8 2.4 1.8 1.7
External sector 12.5 14.7

Exports 56.6 49.8 1.6 3.4 3.3
Imports -44.1 -35.1 8.7 4.0 3.6
http://dx.doi.org/10.1787/261103801637
139
Macroeconomic Policies government recorded budget surpluses and the Bank
of Botswana (BoB) accumulated a comfortable stock
The Vision 2016 policy document, which sets of foreign exchange reserves. From 1998/99 to 2003/04,
ambitious goals for economic growth and poverty the government incurred moderate fiscal deficits. In
reduction, continues to guide macroeconomic policy 2004/05, a budget surplus of 1.8 per cent of GDP was
in Botswana. The main elements of the country’s recorded, up from a modest deficit of 0.2 per cent of
economic strategy are also articulated in NDP9. A key GDP in the preceding year. Although the government
objective remains macroeconomic stability in an has estimated a budget surplus of 1.5 per cent of GDP
economy that is prone to large, unanticipated in 2005/06, many independent forecasts point to a
fluctuations in earnings from mining, as well as shocks marginal deficit of around 0.2 per cent of GDP for the
such as droughts. Another primary objective is to next two years.
create an environment conducive to private-sector
development and export diversification. The maintenance of this healthy fiscal balance was
made possible by the government’s prudent
Fiscal Policy macro-economic management and the introduction
of a number of measures to raise revenues and control
Botswana is well known for its fiscal prudence. expenditure. These include the introduction of the
Fiscal policy is aimed at ensuring that public resources value-added tax (VAT) system and freezing of growth
are effectively used to provide the socio-economic in certain expenditure categories such as official travel.
infrastructure needed for rapid private-sector Recently, the departments of Customs and Excise, VAT
development and export diversification. The fiscal and Taxes were merged to form the Botswana Unified
stance of the government is spelled out in the annual Revenue Service (BURS). Similarly, in 2005 a Fiscal
budget statements presented to parliament. It is Rule Budgetary Mechanism was introduced, which
noteworthy that, for 16 years prior to 1998/99, the caps total expenditures at 40 per cent of GDP. For

Botswana

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue 33.6 31.7 33.2 33.3 33.7 33.6 33.4
Grants 0.6 0.2 0.1 0.7 0.4 0.6 0.0
Interest 0.4 0.2 0.5 0.6 0.5 0.4 0.0
Primary balance 5.3 -3.4 0.3 1.8 0.3 0.3 -0.3

Overall balance 4.9 -3.6 -0.2 1.2 -0.2 -0.1 -0.3
Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/211722037833
2006/07, a number of adjustments were made to the the government budget, focusing on the impact of
tax system; for example, the income threshold exempt fiscal policy on its inflation objective.
from taxation was raised to 30 000 pula from 25 000
pula. Civil service salaries were increased by 8 per cent, In 2006, inflation averaged 12.5 per cent, up from
slightly below the 8.5 per cent inflation rate forecast 11.4 per cent in the preceding year, and well above the
140 for 2006/07. target range. The rise in inflation was attributable in
part to increases in administered prices, including the
Monetary Policy re-introduction of fees in government secondary schools,
which contributed 1.1 percentage points, and fuel
Monetary policy in Botswana seeks to achieve low prices, which were increased three times in the first half
inflation and a stable exchange rate. The BoB’s annual of 2006 in response to high international oil prices
target rate of inflation was 4 to 7 per cent in 2006. For and contributed around 1 percentage point to inflation1.
the first time, the BoB also set a medium-term target Core inflation also increased from 11.1 per cent at the
rate for the 2006-08 period, at 3 to 6 per cent. The end of 2005 to 12.1 per cent in June 20062.
medium-term inflation target was introduced in
recognition of the lag between a policy change and its External Position
impact on the ultimate objective. It also affords the
monetary authorities sufficient time to adjust policy as Exports of diamonds accounted for around 75 per
needed in response to shocks, such as large changes in cent of total exports on average over the 1980-2005
administered prices, and is intended to help stabilise period, with other mining products accounting for
inflationary expectations. roughly another 10 per cent. In 2005, diamond exports
were 80 per cent of total exports, followed by copper
In controlling inflation, the Bank of Botswana uses and nickel (9 per cent), vehicles and parts (4 per cent),
the growth rate of commercial bank credit as an and textiles (3 per cent). Meat and meat products,
intermediate target. Although the BoB has no direct which were Botswana’s main exports until the early
influence on fiscal policy, it does monitor trends in 1970s, declined to less than 1 per cent of total exports.
1. Bank of Botswana, Mid-Term Review of Monetary Policy Statement, 2006.
2. Core inflation is based on average inflation excluding outlier months.

Botswana
The remarkable growth in diamond exports, along Botswana’s principal trade partners are the Southern
with prudent macroeconomic policies that restrained African Customs Union (SACU) member countries
import demand, ensured that Botswana maintained a (especially South Africa), the United Kingdom, the
very strong balance-of-payments position, which led United States and the rest of Europe. Botswana’s trade
to the accumulation of large foreign exchange reserves. policies are largely dictated by its membership of
As at the end of 2006, Botswana’s foreign reserves stood SACU. The SACU agreement provides for a common
at $6.2 billion, enough to cover 27 months of imports external tariff structure and duty-free movement of
of goods and services. goods originating within the customs union, except
in specified exceptional circumstances. Currently,
Botswana’s trade balance has consistently been Botswana also participates in a number of other bilateral
positive. In 2004/05, the trade surplus increased to and multilateral agreements, including the Cotonou
nearly 11 per cent of GDP, up from 5 per cent in the Partnership Agreement between the European Union
preceding year. Similarly, the current account surplus (EU) and the African, Caribbean and Pacific (ACP)
rose to around 8 per cent of GDP, as opposed to a states (to be replaced by the Economic Partnership
deficit of 1.1 per cent of GDP in the preceding year. Agreement – EPA – currently being negotiated between
The current account surplus is forecast to increase the EU and the Eastern and Southern African regional
further in the next two years. grouping), the Generalised System of Preferences

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance 12.6 7.8 4.9 10.9 7.7 7.4 7.7 141
Services -4.9 -0.1 -0.5 -0.3 3.2 3.3 3.3
Factor Income 2.5 -9.2 -11.3 -7.9 -6.7 -5.3 -4.5

Current account balance 15.3 2.2 -1.1 8.1 8.8 11.3 11.9
Source: Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations
http://dx.doi.org/10.1787/703668733667
(GSP), the United States’ African Growth and 7.5 per cent in February 2004. In May 2005, a crawling
Opportunity Act (AGOA) and the World Trade peg for the NEER was introduced, under which a
Organisation (WTO). further nominal devaluation of the pula by 12.5 per
cent occurred. During this period, however, the real
Exchange-rate policy aims to balance the sometimes effective exchange rate appreciated by about 3.5 per cent
conflicting objectives of boosting non-traditional exports as the downward crawl of the nominal exchange rate
and lowering inflation. The policy has pegged the failed to offset fully the differential between domestic
nominal effective exchange rate (NEER) of the pula and trading partners’ inflation rates.
to a basket of currencies comprising the IMF Special
Drawing Right (SDR) and the South African rand in To foster a more attractive investment climate,
proportions that reflect Botswana’s trade shares. Stability Botswana has completely liberalised the exchange
of the NEER has acted as a nominal anchor for control regime. Foreign direct investment (FDI) into
monetary policy. In recent years, however, the real Botswana has steadily declined from $100 million in
exchange rate of the pula has exhibited considerable 1997 to around $37 million in 2004, despite a
volatility. For instance, the NEER appreciated by 25 per relatively favourable investment climate and political
cent between 2000 and 2003, but was devalued by stability. Foreign investors are perhaps deterred by

Botswana

25
20
15
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
142 Source: IMF.

http://dx.doi.org/10.1787/213686530562
Botswana’s situation as a small landlocked country. Low focusing on a few key economic reforms, including
incomes and the HIV/AIDS pandemic might also privatisation and reform of public-sector management.
curtail the volume of FDI inflows in sectors other than
natural resources. Although the investment climate in Botswana is
among the best in sub-Saharan Africa, the World Bank’s
Doing Business indicators reveal deterioration in 2006,
Structural Issues with Botswana’s rank falling to 48th from 44th out of
175 countries. The deterioration was most marked in
Recent Developments the category of business licensing, where Botswana’s
position fell to 136th from 115th. Botswana also ranks
For over four decades, Botswana has based its poorly in investor protection, where its position fell to
development strategies on the NDPs. These plans cover 118th from 114th. Clearly, there is room for improvement
a six-year cycle, subject to a mid-term review every in these matters.
three years. The first eight NDPs (from NDP1, 1966-
69, to NDP8, 1997/98-2002/03) focused on the twin The government has recently created a High Level
objectives of achieving sustainable economic growth and Consultative Council (HLCC), chaired by the country’s
diversification of the economy. The current plan president, consisting of government and private-sector
(NDP9, 2003/04-2008/09) continues this focus with representatives. Sectoral HLCCs were established to
an emphasis on competitiveness in global markets. A identify constraints at the industry level, and their
mid-term review of NDP9 carried out in 2005 revealed recommendations are forwarded to the main HLCC
that the targets for diversification were again not being for consideration. The government has also put in
achieved. The government is reassessing its strategy, place other institutions, programmes and policies aimed

Botswana
at promoting the development of the private sector. west to 650 mm in the extreme north; the national
These include the Botswana Confederation of average is only 450 mm. Most of the rainfall, surface
Commerce, Industry and Manpower (BOCCIM), the water and water in the soil is lost through evaporation
Hospitality and Tourism Association of Botswana and evapotranspiration, as open water evaporates at a
(HATAB), the Botswana Export Credit Insurance and rate of about 2 000 mm per year. Recurrent periods of
Guarantee Company Limited (BECI), the Botswana drought exacerbate water scarcity.
Bureau of Standards (BOBS), the Industrial
Development Policy, the Small, Medium and Micro Eighty per cent of Botswana is covered by the sands
Enterprises (SMME) Policy, the Citizen Entrepreneurial of the Kalahari desert, which has no effective drainage
Development Agency (CEDA) and the Botswana system apart from dry valleys, which hardly carry any
Export Development and Investment Agency (BEDIA). water even after intense rainfall. The thickness of the
Kalahari sand beds inhibits groundwater recharge
The government set up the Public Enterprises and through rainfall in most areas. Groundwater can be
Privatisation Agency (PEEPA) five years ago, but since found beneath these sand beds, but generally at great
its establishment PEEPA has made little progress in depth, and with low yields that can support few people
divestiture. It has, however, undertaken a review of the and livestock. Away from the Kalahari, groundwater
operations and activities of local and central government is found closer to the surface (30-100 metres in eastern
departments and public enterprises, and has examined Botswana) and is recharged from rainfall. Surface water
the availability of opportunities for private-sector resources are concentrated in the thinly populated
participation in these public institutions. PEEPA also Ngamiland and Chobe districts, where the only
developed the Privatisation Master Plan for Botswana, perennial sources – the Okavango delta and the Kwando,
which has since been approved by government. The Chobe and Liyanti rivers – are found. These two river 143
Master Plan provides the framework and guidelines for systems provide 95 per cent of Botswana’s surface water
the implementation of reforms to increase private sector resources.
participation in the economy. In addition, PEEPA has
developed guidelines and manuals to help managers of Although Botswana continues to develop its water
public institutions implement privatisation in a resources at very great expense, demand for water has
consistent, transparent and equitable manner. These been rising over the years owing to the increasing degree
include the Contracting Out Guidelines and the of urbanisation coupled with the increasing affluence
Divestiture Procedure Manuals, and plans are under of the population. Botswana’s total annual water demand
way to introduce procurement guidelines for public- reached 20 million m3 in 1990, with the agricultural
private partnerships. PEEPA’s annual work plan for sector, mainly livestock and limited irrigation, consuming
2005/06 included a feasibility study on merging the about half of this. By 2006, water demand in Botswana
National Development Bank (NDB) and the Botswana has risen to about 88.3 million m3. This demand level
Savings Bank (BSB). The study has since been completed, is projected to rise to about 104.8 million m3 in 2015
and the government has requested revisions of the and 186.5 million m3 in 2035.
recommendations. PEEPA is now finalising the
procedures for the establishment of the Privatisation Trust A review of the water balance situation in Botswana
Fund, which will hold shares of the privatised entities reveals that, on average, more than 46 per cent of it is
for the purpose of citizen economic empowerment. wasted though leakage, lack of demand management
programmes and inefficient use. The current average
Access to Drinking Water and Sanitation water losses of the Department of Water Affairs (DWA)
are 28 per cent and those of the Water Utilities
Both surface and underground water resources are Corporation (WUC) 10 per cent. Thus, significant
scarce in Botswana. Over most of the country, rainfall savings could be made by addressing water conservation
is low, varying from 250 mm a year in the far south- and demand management in Botswana. The need for

Botswana
accurate reporting and monitoring is therefore essential, iii) expansion of urban water supply systems to address
as a starting point for future demand management and increasing demand (which is growing by 16 per cent
water conservation. annually); iv) groundwater resources investigation and
development (four projects).
Botswana’s future water demand will be met by
utilisation of shared watercourses because the available Water quality issues are governed by regulatory
water resources may be insufficient to meet future standards formulated by the Botswana Bureau of
demand projections. Thus, participation in trans- Standards, which stipulates product quality standards
boundary water resources management is one of the and the penalties for breach of such standards. In terms
government’s priorities, since most of the country’s of water charges, the government subsidises the
major rivers share courses with neighbouring countries. operating costs of water delivery by more than 40 per
Botswana has entered into four trans-boundary cent. In addition, there is a subsidy on water
agreements concerning watercourses, namely the Orange- infrastructure. The structuring of water charges clearly
Senqu, Limpopo, Okavango and Zambezi rivers. reflects the government’s policy of making water
available to rural communities at an affordable charge.
Water resources management is the responsibility
of a number of institutions, including the Ministry of Although water is scarce in Botswana, the country
Minerals, Energy and Water Resources (MMEWR), is determined to provide universal access to safe drinking
Ministry of Local Government (MLG), Ministry of water. The proportion of the population with sustainable
Agriculture (MOA), district councils, the National access to safe drinking water increased from 77 per cent
Conservation Strategy (Coordinating) Agency (NCSA), in 1996 to 97.7 per cent in 2000. Recently, however,
144 and the Department of Waste Management and Pollution this figure has marginally declined, as the data for 2005
Control (formerly the Department of Sanitation and indicate that 96 per cent of the population had access
Waste Management). The MMEWR has overall to safe drinking water. Surface water resources, though
responsibility for policy in the water sector. Within limited, continue to constitute the main sources of
MMEWR, the DWA is responsible for groundwater water supply in urban areas, while rural areas largely rely
investigations, protection and monitoring of resources, on groundwater resources. There are around 25 000
and water supply development in rural areas. officially registered boreholes in Botswana, of which
10 000 are owned by the government. All officially
In the area of water resources development recognised settlements have at least one standpipe within
(i.e. construction of dams and well-fields, water transfer an average radius of 400 metres for every household,
from source to user point, and water reticulation at the provided and maintained by the government.
end user point), the WUC, a wholly government owned
parastatal, is responsible for development of Some disparities are found between urban and rural
infrastructure and water supply to six urban centres. areas in terms of access to water. In 2000, nearly all
WUC supplies clean, safe drinking water to about households in urban areas had running water in their
34 per cent of Botswana’s population. homes (52.1 per cent) or could fetch it from a nearby
public standpipe. Only 9.1 per cent of rural households
Significant progress has been made in the provision had piped water in their homes. About 84.2 per cent
of water infrastructure, and the government of Botswana have access to public standpipes, while about 7 per
is committed to implementing the NDP9 projects in cent of rural dwellers did not have access to safe drinking
the water services sector. Planned projects in the next water at all.
two years include: i) construction of the Lotsane,
Ntimbale, Lower Shashe and Thune dams; Although Botswana has made great strides in terms
ii) construction of new village water supply systems and of potable water supply, the wastewater and sanitation
major rehabilitation works on 13 existing systems; sector has not grown to the same extent. Currently, only

Botswana
41 per cent of the population in Botswana has access transitions. Botswana operates a multi-party democracy
to sanitation. The Botswana’s Landfill Guidelines and with a parliamentary system of government. In the last
Waste Management Act (1998) and the Sanitation and election, President Festus Mogae was re-elected, and
Waste Management Policy of August 2001 provide the his party, the Botswana Democratic Party (BDP), won
necessary institutional, administrative and legal 44 of the 57 parliamentary seats. Despite the country’s
structures for the implementation of a programme of long experience of democracy, the opposition parties
action on sanitation. The creation of the Department are very weak, fragmented and unco-operative.
of Sanitation and Waste Management in the Ministry
of Local Government was instrumental in the In spite of its excellent economic performance,
development of the National Master Plan for Wastewater Botswana faces the serious development challenges of
and Sanitation (NMPWS) in 2003. chronic unemployment, high levels of poverty and the
HIV/AIDS pandemic. The rate of unemployment
Gaborone has a wastewater treatment plant, and increased from 14 per cent in early 1990s to 24 per cent
there is a biological filtration plant in Francistown to in 2004/05. Unemployment is much higher among
treat the city’s wastewater. With the exception of these women (24 per cent) than among men (17 per cent),
two cities, all of the municipal wastewater treatment even though the labour force participation rate for
plants in Botswana are currently using waste stabilisation women is far lower than that for men.
pond systems, with or without anaerobic pre-treatment.
The wastewater from government institutions is also In terms of regional distribution, unemployment
treated in waste stabilisation pond systems except for is highest in urban villages (25 per cent), followed by
the smallest institutions, where communal septic tanks rural areas (18 per cent) and lowest in urban towns
are used. (16 per cent). As in most developing countries, 145
unemployment is most prevalent among young people
The NMPWS aims to double sewerage coverage aged between 15 and 24 years. The overall youth
from 12.5 per cent of the population to 25 per cent unemployment rate in Botswana is over 40 per cent;
by 2030. Botswana currently has about 75 wastewater the rate for females is higher at 48 per cent
treatment facilities and manages to recover only half unemployment, while male youth unemployment is
of its annual throughput of wastewater for reuse. To 35 per cent.
improve the coverage of waste management and
sanitation in the country, NDP8 (1997-2003) provided A number of factors have contributed to the growing
for the construction of 22 000 latrine substructures in unemployment in Botswana, including skill shortages
villages and other remote settlements. A total of 18 635 (especially entrepreneurial skills), poor attitudes towards
latrines (about 85 per cent of planned) have been work that contribute to low productivity and lack of
completed. In addition to the latrines, other funds to start up a business. Recent studies on
technological approaches have been tried in the villages. productivity in Botswana confirm that workers have a
One such technology is the Enviro Loo, a sealed dry relaxed attitude to work and seem to lack motivation.
compost unit incorporating accelerated dehydration There have been numerous efforts to address these
utilising a wind-powered turbine ventilator. problems in recent years, some by the Botswana
National Productivity Centre.
Political Context and Human A recent status report on progress towards the
Resources Development Millennium Development Goals (MDGs) shows that
Botswana is on target to achieve many of these goals,
Botswana is well known for political stability and including the poverty reduction target. Even so, the
good governance, and democratic principles are deeply incidence of absolute poverty is still high in Botswana.
entrenched following decades of successful democratic Estimates from the 2002/03 Household Income and

Botswana
Expenditure Survey data indicate that the proportion led by bilateral and multilateral donors, is providing
of people living below the poverty line fell from 47 per additional support towards addressing the HIV/AIDS
cent in the 1990s to 30 per cent in 2003. The United pandemic in Botswana.
Nations Human Development Report for 2006 also
estimates that 23.4 per cent of the population was living Botswana has made significant progress on the
below $1 per day during the 1990-2004 period; in fact, other MDGs, particularly on those relating to universal
the report ranked Botswana 93rd out of 102 developing education and gender equality. The country has already
countries in terms of the human poverty index (HPI)3. achieved the 100 per cent target for primary school
For the economy to achieve its Vision 2016 goal of enrolment and 100 per cent transition rate from primary
zero poverty, there must be concerted efforts and new education to junior secondary education. Secondary
strategic thinking towards poverty eradication. school enrolment is currently above 90 per cent, and
the immediate focus is on raising it to 100 per cent
The HIV/AIDS pandemic is imposing high within the next few years. The government is also
budgetary expenditures on treatments as well as disabling striving to improve the quality of education at all levels,
a sizeable part of the workforce, thus reducing with strong emphasis on technical, management and
employment and output. The government continues vocational education. With regard to gender equality,
to implement the comprehensive national strategic Botswana has already surpassed its targets in primary
framework (NSF) for HIV/AIDS, aimed at having an and secondary education, as the net school enrolment
HIV-free generation by 2016. The NSF involves a rate for girls is greater than that for boys, while the female
triple approach of prevention, care and treatment, literacy rate exceeds the male rate. Despite these
which has already begun to yield dividends, as the impressive statistics, women remain relatively
146 proportion of the sexually active age group (15-64 disadvantaged in terms of access to social services and
years old) infected with HIV appears to have declined economic opportunities, and women are also
below 35 per cent. While the increased government disproportionately afflicted with HIV/AIDS.
expenditure on the NSF is important, behavioural
change is also required if the incidence of HIV infection Overall, the human development index (HDI) for
is to be reduced. The government remains committed Botswana is relatively favourable but exhibits a declining
to finding innovative ways to address the problem, and trend since the early 1990s. From a peak of 0.68 in 1990,
its efforts are being seconded by the African it had fallen to 0.57 in 2004, largely due to the relatively
Comprehensive HIV/AIDS Partnership. Such a low value of its life expectancy index. The HIV/AIDS
collaborative scheme between the government and situation and other health-related problems have
non-governmental organisations is expected to continue combined to reduce average life expectancy to only
for the next three years. The international community, 35 years.
3. Of the 102 countries, only nine (Mozambique, Sierra Leone, Guinea, Swaziland, Ethiopia, Niger, Chad, Burkina Faso and Mali) have
worse poverty situations than Botswana.

Burkina Faso
Ouagadougou
key figures
Burkina Faso
town > l million inhabitants main airport
500 000 - 1 000 000 secondary airport
100 000 - 500 000 commercial port
petroleum port
fishing port
W ITH A PER CAPITA INCOME OF $400 in 2005 (World locust invasion or even floods are enough to jeopardise
Bank data), Burkina Faso is one of the poorest countries the entire harvest and to plunge the country into
in the world. More than 45 per cent of the population recession. The solid economic performance of the last
lives on less than a dollar a day. Nonetheless, five years is primarily the result of good climatic
development perspectives appear good based on recent conditions, which have made possible cereal surpluses
economic performances. Over the 1996-2005 period, of several hundred thousand
Cotton remains the dominant
Gross Domestic Product (GDP) grew on average by tonnes. This trend appears
economic sector but there have
4.6 per cent a year. It was estimated to have grown by to be continuing, with
been promising developments
5.5 per cent in 2006 – after having reached 7 per cent cereal production expected
in mining linked largely
in 2005 – and is forecast at 5.4 per cent for 2007. to rise in the 2006/07
to the liberalisation policy.
campaign by 6 per cent over
The economy is very vulnerable and highly exposed the previous harvest, and by 18 per cent over the five-
to internal and external shocks. The country’s economic year average. Thus, a net cereal surplus of more than
performance is deeply dependent on that of agriculture, 1 million tonnes will be produced for the 2006/07
itself at the mercy of climatic hazards. Poor rainfall, a agricultural campaign.
149
Source: IMF and national sources data; estimates (e) and provisions (p) based on authors’ calculations.
http://dx.doi.org/10.1787/207675023222

Burkina Faso
GDP should continue to grow at a sustained pace is overwhelmingly reliant on harvests. Four primary
notwithstanding predictable climatic shocks. The shocks marked the 2006/07 agricultural campaign: i)
combination of a more than 13 per cent rise in the price the late arrival of the rains; ii) floods and locust attacks
of cotton in 2006/07, the first gold exports from new in some provinces; iii) a reduction in crop surfaces
commercial mines and the implementation of new planted with cereals; and iv) falling profitability of
reforms should all help sustain growth. Measures are crops and the bursting of dykes of irrigation works. In
being taken in line with the following strategic policies: spite of this, the agricultural sector posted volume
improving the legal environment of business, continuing growth of 6 per cent in 2006.
state withdrawal, strengthening business capabilities,
developing institutions to support the private sector, Gross cereal production for the 2006/07 harvest
financing the private sector, developing infrastructure, reached 3 858 713 tonnes, including 3 669 048 tonnes
and developing the mining sector. of cereals (sorghum, millet and maize) and
189 176 tonnes of rice. These results, chiefly due to
good rainfall and the continuation of village irrigation
Recent Economic Developments programmes, translate into a rise of about 6 per cent
over the previous year, and of 18 per cent over the five-
Real GDP grew by 5.5 per cent in 2006, thanks to year average. The production of other food crops (yams
the favourable agricultural season. A growth rate of and sweet potatoes) fell by 1 per cent over the 2005/06
5.4 per cent is forecast for 2007. This solid performance campaign and rose by 13 per cent over the five-year
is primarily attributable to increased growth of cotton average. As a result, the available stocks at the end of
production and the first exports from new gold mines. October 2006 were estimated at 233 553 tonnes.
150 The rate of increase in exports has in general exceeded These represent growth of around 23 per cent over the
that of imports in recent years. However, owing to a last harvest. The expected cereal harvest should permit
deterioration of the terms of trade, the current account annual consumption needs to be met at the level of
deficit increased from 10.4 per cent of GDP in 2005 284.9 kilogrammes per inhabitant. But despite an
to an estimated 12.4 per cent in 2006. In the medium expected sizeable cereal surplus of more than 1 million
term it is expected that the current account deficit will tonnes, areas with food security risks remain. These
drop to 11.4 per cent in 2008. areas were hit by the shocks experienced during the
2006/07 campaign. Six regions (Sahel, Central-North,
The primary sector is the chief source of income North, Boucle du Mouhoun, Hauts Bassins and the
and employment for the majority of the population South-West) were affected by floods. The regions of
(80 per cent). In 2006, it accounted for 37.2 per cent Sahel and Central-East suffered from pest invasions
of GDP. The performance of the Burkinabè economy and in August-September, periods and pockets of
Source: Authors’ estimates based on Ministry of Economy and Finance data.

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Burkina Faso

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 11.3 11.1 5.0 6.7 9.4
Private 12.9 9.5 7.3 7.0 3.0
Consumption 91.1 94.1 5.3 4.5 5.4

Public 22.3 21.5 8.2 3.7 3.7
Private 68.9 72.5 4.5 4.7 5.8

Exports 12.8 9.7 9.7 12.1 8.4
Imports -28.1 -24.3 8.4 5.5 6.8
Source: Source: National Institute of Statistics and Demography data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/112662154136
drought were observed in the provinces of Oudalan, 200 000 people and are the source of income for many
Soum and Séno. households.
Cash crops (cotton, groundnuts, sesame and soya) The secondary sector’s GDP share (including
rose by 2.26 per cent over the previous campaign mining) should stabilise at around 20 per cent in
though they fell by 1.01 per cent over the five-year 2006/07. The total contribution of the secondary sector 151
average. The cotton harvest reached a record level, with to growth should rise from 1.2 per cent of GDP in 2005
730 000 tonnes in 2006. But the price paid to producers to 10.9 per cent in 2007. This performance is explained
fell, from 210 CFA francs per kilogramme in 2004/05 by the dynamism of manufacturing industries.
to 175 CFA francs per kilogramme in 2005/06. A
further decrease is expected in 2006/07. These The tertiary sector grew by 5.2 per cent in 2005.
fluctuations played a major part in the collapse of This rate could increase to 5.4 per cent in 2006 and
producer profits, leading some to abandon cotton 7.8 per cent in 2007. The growth is attributable to
farming, and to an increase in rural poverty. commercial and non-commercial services the GDP
Nevertheless, the government’s creation of a stabilisation share of which should pass from 42.8 per cent in 2005
fund to protect farmers from fluctuations in world to 43.6 per cent in 2007. With the transport, trade and
prices, and the expansion of the investments of Sofitex, telecommunications sectors expected to flourish, the
the fibre and textile company, raising its capital from contribution of the tertiary sector to economic growth
4.4 billion CFA francs to 38 billion CFA francs, will will be 2.1 per cent of GDP in 2006 and 3.1 per cent
enable cotton production to continue to grow. in 2007.
Gold is Burkina Faso’s principal mineral resource

and the 1996 liberalisation of the sector attracted several Macroeconomic Policy
foreign investors. Production of 9.4 tonnes is expected
for 2008, against 7.4 tonnes in 2006 and an estimated Fiscal Policy
8.7 tonnes in 2007. Several projects are under way. The
sector is experiencing difficulties, however, as safety Burkina Faso is a member of the West African
concerns in small mines will eventually lead to their Economic and Monetary Union (WAEMU). Within
closure, entailing heavy economic and social it, countries retain a discretionary margin solely over
repercussions as these mines employ some budgetary policy with convergence rules that must be

Burkina Faso
respected. One of the convergence criteria sets out a Without the MDRI, the deficit would have
minimum contribution from taxes of 17 per cent of increased to 5.2 per cent of GDP. Nonetheless, the
GDP. In 2003 however, Burkina Faso did not comply IMF stressed that the improvement of the debt
with this criterion. Indeed, fiscal revenue only barely indicators should not encourage the government to
exceeded 11 per cent of GDP, although a rising trend begin borrowing. It recommended instead that the
has been observed since 2006. This weak fiscal pressure government capitalise on the savings realised through
prevented Burkina Faso from meeting the first the MDRI by adopting a prudent fiscal policy,
convergence criterion, which calls for a neutral or improving the mobilisation of resources, redoubling
positive basic fiscal balance in relation to GDP. efforts to contain the risks attendant on international
grants and borrowing only on concessionary terms.
The budget deficit (including grants) fluctuates. It These are all prerequisites for meeting the Millennium
rose from 2.9 per cent in 1998 to 4.4 per cent in 2002. Development Goals and for reducing poverty.
It is expected that the budget deficit will fall from
4.9 per cent of GDP in 2005 to 3.3 per cent in 2006. For 2006, fiscal reform focused on VAT
This relative improvement was due to larger foreign reimbursement procedures, improving customs
assistance in the form of grants. Over the period the administration and adopting a new investment code.
ratio of grants to GDP was fairly unstable, although The government maintained the tax on oil products
since 2002 a significant fall has been observed. but it increased its subsidies to the national electricity
provider (Sonabel) by 18 billion CFA francs (0.6 per
From the perspective of the International Monetary cent of GDP) in 2006 in order to prevent a rise in the
Fund fiscal policies in 2006 struck a fair balance between price of electricity of around 30 per cent. These subsidies
152 the implementation of priority social spending and will be removed between now and 2009 (with an
debt sustainability: they draw on resources released by exception being made for low income households)
the Multilateral Debt Relief Initiative (MDRI), once the country is connected to the electricity grid of
concessionary loans and budgetary support from donors. Côte d’Ivoire.
According to the IMF, the primary balance went from
a deficit of 4.9 per cent of GDP in 2005 to a deficit In spite of the macroeconomic results, the IMF
of 2.8 per cent in 2006, reflecting the cancellation of remarked on the slowdown in the privatisation
the debt. programme.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Total revenue and grants 18.3 17.5 17.1 16.8 19.8 16.9 17.2
Tax revenue 11.1 10.9 11.8 11.1 11.2 11.2 11.3
Other revenue 0.9 1.2 1.0 0.9 0.9 0.9 0.9
Grants 6.3 5.4 4.3 4.8 7.8 4.9 5.0
Total expenditure and net lending 21.2 20.4 21.4 21.7 23.1 22.6 23.1
Interest 0.8 0.7 0.7 0.6 0.5 0.5 0.4
Primary balance -2.1 -2.2 -3.6 -4.3 -2.8 -5.3 -5.5

Overall balance -2.9 -2.9 -4.3 -4.9 -3.3 -5.7 -6.0
http://dx.doi.org/10.1787/506787344782

Burkina Faso
To implement its policy, the finance and budget for the approval of the National Assembly, during the
ministry is focusing on sustainable growth and the Finance Act.
fight against poverty through: i) economic liberalisation;
ii) good economic governance; iii) ongoing stabilisation Monetary Policy
of public finances and of the banking sector; iv)
strengthened mobilisation of domestic and external Burkina Faso’s monetary policy is determined by
resources; and v) regional integration. The execution the BCEAO (Central Bank of West African States)
of poverty-reduction policies contained in the Poverty whose priority is to control and contain inflation. Its
Reduction Strategy Framework (PRSF) should increase monetary policy nonetheless remains influenced by
both the supply of essential goods and services and the European Central Bank as the WAEMU currency
facilitate access to them, as well as strengthening the (the CFA franc) is pegged to the euro. It is thus obvious
capacity of groups to acquire basic goods and services. that Burkina Faso’s BCEAO-led monetary policy is
strongly influenced by the policy conducted in the
The finance and budget ministry intends to keep euro zone. The consumer price index (CPI) was more
up its reform efforts in order to boost growth while or less contained up until 2004. In 2005 it rose however
keeping inflation below the 3 per cent ceiling fixed by to reach the record level of 6.4 per cent, a figure unseen
the WAEMU convergence programme. In terms of since 1998. This increase is explained by the rise in the
fiscal policy, the goal is to limit the overall deficit to price of oil and gas, which had a severe impact on
3.5 per cent of GDP through increased control of household living standards. Inflation dropped noticeably
spending and improved fiscal revenues. Attention will in 2006 to2.4 per cent. This drop is partly explained
also be given to improving the quality of public by the stabilisation of the price of oil on world markets.
investment in order to increase its effectiveness. The According to projections, this decline should be 153
government also wishes to strengthen reforms sustained in 2007 with an inflation rate of around
undertaken in recent years regarding budget 2.7 per cent of GDP.
formulation, monitoring budgetary execution, control
and audits. External Position
In terms of revenue, the authorities are planning The country’s current account deficit should remain
to focus on developing a computerised revenue tracking sizeable in 2006 and for the coming two years. The
system following the example of the computerised country has a structural trade deficit. Nevertheless, the
expenditure tracking system, in order to widen the deficit has been fairly well contained in recent years.
fiscal base and strengthen the efficiency of fiscal and Indeed, the trade deficit on GDP fell from 11.1 per
customs administration. They seek to improve the cent in 1998 to 9.7 per cent in 2006. This improvement
collection of both direct and indirect taxes as well as should continue, and the deficit should stabilise in the
revenue from services. The spending programme will neighbourhood of 8.6 per cent in 2007 and 2008.
be based on the identification of operational measures These positive results are attributable to an increase in
likely to reduce the delays noted in executing spending cotton and gold exports. Imports should, however,
financed by the HIPC (Heavily Indebted Poor increase under the strong influence of the rise in the
Countries) initiative. It also aims at better management price of oil products, a trend towards deteriorating
of public consumption of water, electricity and terms of trade, and the vibrancy of the Burkinabè
telephones, as well as the wage bill. economy.
The drawing up of a procedures manual should The services deficit relative to GDP exceeded 5 per
enable more effective execution of HIPC-funded priority cent in 2006 having been limited to 4.5 per cent since
programmes. Utilisation authorisations for these funds 1998. This indicates a fairly strong dependence on
will henceforth be submitted, with details of all activities, external aid. An examination of the ratio of current

Burkina Faso

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -11.1 -8.4 -7.6 -9.4 -9.7 -8.6 -8.6

Services -4.4 -4.4 -4.5 -4.1 -5.4 -5.4 -5.6
Factor income -0.4 -0.6 -0.6 -0.7 -0.7 -0.3 -0.3
http://dx.doi.org/10.1787/003136308577

154
Source: IMF.
http://dx.doi.org/10.1787/683167457327
transfers in GDP shows a drop over the period, dropping initiative. Revenues will continue to benefit from various
from 6.7 per cent in 1998 to 3.4 per cent in 2006. This debt relief programmes under the HIPC initiative and
decline should continue in 2007 and 2008 with the ratio the Multilateral Debt Relief Initiative (MDRI). In
contracting to 2.9 per cent. These results can be January 2006, Burkina Faso was granted relief totalling
explained by unfavourable circumstances at the regional $89 million. Following this, in March and April 2006,
level, particularly the crisis in Côte d’Ivoire, which the World Bank and the African Development Bank
contributed to a major reduction in the volume of cancelled $861 million and $340 million of public
transfers to Burkina Faso. debt, respectively. The government committed itself to
allocating the amounts saved by debt cancellation to
In 2005, public debt stabilised at 34.8 per cent of the reduction of poverty and to spending in priority
GDP because of debt relief granted under the HIPC social sectors.

Burkina Faso
Structural Issues $321 million including an annual drilling capacity of

311 000 ounces of gold for eight years.
Recent Developments
Goldrush announced the implementation of a
The various structural reforms undertaken and mining permit acquired in August 2006 for Falagountou.
the increase in investment in some sectors seek to Finally, in November 2006, five large mining projects
maintain sustained growth. Furthermore, the poor intensified their activities: i) Riverstone Resources
ranking of the country in the World Bank’s Doing completed its operations on the Tao project and work
Business index – 163rd in 2006 – prompted several will continue throughout 2007; ii) Goldcrest Resources
reforms with the goal of improving the business began exploitation of the mines at Kampti and Gaoua
environment and, in particular, encouraging private in the southwest of the country, where mines could
sector development. hold millions of ounces; the company is also planning
to operate the mines of Malba and Souhouera; it has
In the cotton sector, the government introduced a also purchased the Danyoro mine, assumed to contain
programme to insulate farmers from the market volatility significant quantities of gold; iii) Etruscan Resources is
of the past few years. This programme consists of special sinking a mine at Youga, near the border with Ghana,
reserve funds to protect producers from price where extractions should reach 86 000 ounces of gold
fluctuations. For the 2007/08 agricultural season, the annually during six and a half years; the company is
price paid to farmers will depend on past prices and planning to invest $44 million in the second half of 2007;
anticipated international prices. If there are fluctuations, iv) The Canadian company High River Gold increased
stabilisation funds will be used for adjustments. This its financing for the Bissa project, put at $12 million,
equalisation system will make it possible to safeguard which it expects to yield 1.3 million ounces, with an 155
producer revenues and to reduce rural poverty in the initial annual production of 100,000 ounces rising to
coming years. The price-fixing mechanism has not yet 140 000 ounces; v) Goldbelt completed its feasibility
been set, however, and the IMF has advised the study for the Belahouro project, 220 kilometres northeast
government only to use this equalisation system in of Ouagadougou; this project includes the sites of Inata,
exceptional circumstances. The European Union and Souma and Fete Kole. The Inata mine could produce
the Agence Française de Développement (AFD) have 100 000 ounces of gold annually during the first five
expressed interest in the programme. years, and up to 140 000 ounces once development
works have been completed.
In November 2006, the chief shareholders of
SOFITEX textile and fibre company, which include the For 2007, gold exports from commercial mines
state (35 per cent) and the French group DAGRIS will grow significantly. They are estimated at 8.7 tonnes
(34 per cent), agreed to increase the company’s capital, in 2007 and 9.4 tonnes in 2008.
which should rise from 4.4 billion CFA francs to
38 billion CFA francs. This recapitalisation is a sign of In September 2006, the Minister of Transport
better times for the cotton sector. announced plans to construct a new airport at Donsin,
35 kilometres northeast of the capital Ouagadougou. The
The liberalisation of the mining sector in 1999 project will cost 235 billion CFA francs, and the first phase
succeeded in attracting several foreign companies. of the project beginning in 2007 will cost 115 billion
Orezone Resources (the owner of the Essakan mine) CFA francs. The new airport will make it possible to
has set up the largest project in the gold-mining sector. process more than 1.5 million passengers a year, compared
Some 1.9 million ounces of measured and indicated to 250 000 passengers in the current airport.
gold deposits and another 1.5 million ounces of inferred
deposits have been identified in the northeastern Dori The banking sector in Burkina Faso is comprised
region. The total cost of the project is estimated at of commercial banks and microfinance institutions.

Burkina Faso
On 31 December 2005, 11 banks were operating, in a new approach to water and established a distinction
addition to five financial institutions (unchanged from between urban centres, semi-urban zones and rural
2004). In 2006, three new institutions authorised at areas. The water and sanitation sectors are faced with
the end of 2005 (Banque Régionale de Solidarité several operational and infrastructural constraints. The
Burkina, Banque de l’Habitat du Burkina Faso – BHBF government’s first priority is to pursue the Millennium
– and Banque Atlantique Burkina) were due to expand Development Goal (MDG) to reduce the number of
their operations. people without access to clean water. Several strategic
actions have been put in place. These include: i)
Microfinance institutions have expanded rapidly developing sanitation policies, especially in rural and
over the past few years and microfinance plays an semi-urban areas; ii) developing decentralised
important role in Burkina Faso. According to the governance capacities; and finally, iii) ensuring proper
BCEAO, on 31 December 2005 almost 600 000 people co-ordination in the two sectors.
used the services of the main networks. Deposits, which
had risen 22 per cent over the end of 2004, were assessed The relationship between the water sector and the
at 34 billion CFA francs, and credits (up 19 per cent) poverty reduction strategy remains weak. Funds are
at 31.5 billion CFA francs. Since starting operations at limited and the sanitation system is not included in the
the beginning of the 1990s, the sector has moved towards programme. Still, in May 2005, a roadmap for the
increased professionalism. The average portfolio loss rate MDG in the sectors of drinking water and sanitation
of the decentralised financial systems in Burkina Faso was adopted for 2007-09. With the aim of making the
has improved over the last five years, reaching 5 per cent national strategy more effective, the following measures
in 2005, down from 12.5 per cent in 1999. In 2006, were decided upon: i) improving co-ordination in the
156 the Banque Régionale de Solidarité Burkina expanded, sector; ii) increasing transparency and financial flows;
having been created at the end of 2005 with the aim of and iii) aligning national budget objectives with those
financing individual projects and of micro-enterprises. of the sector.
The government aims to reinforce supervision of In Burkina Faso, the water management department,
the financial sector in co-operation with the monetary the DGRE (Direction de Gestion des Ressources en
authorities, and an overall strategic plan to improve the Eaux) and the national water and sanitation office, the
organisation of the microfinance sector is also expected. ONEA (Office National de l’Eau et de l’Assainissement)
Elsewhere in the field of finance, savings taxes will be share responsibility for infrastructure and water and
re-examined both to adapt to the regional context and sanitation projects. In urban zones, the ONEA is putting
to promote their mobilisation to finance SMEs. in place a set of strategies for managing water, while
in rural areas, the Charte Générale des Collectivités
Since 2004, the privatisation process has been Territoriales (CGCT) is investing local communities
remarkably slow because of administrative delays, trade with responsibility for managing water and sanitation
union opposition, and, above all, the weak capacity of until 2009. Given the low level of decentralisation in
the government to implement reforms. Burkina Faso and the lack of technical and legislative
mechanisms for transferring responsibilities, the
Access to Drinking Water and Sanitation execution of this policy remains unclear. The project
is still being developed and has set out some ambitious
Burkina Faso has scant renewable water supplies: targets both for urban and rural zones. Only the two
only 906 m3 per inhabitant per year in the 2003-07 largest cities (Ouagadougou and Bobo-Dioulasso) have
period. adopted sanitation plans.
In March 2003, the government adopted an action The ONEA has more than 60 000 subscribers. In
plan for drinking water and sanitation. This laid out February 2003, it began increasing its rates. Households

Burkina Faso
pay 188 CFA francs per m3 of water, instead of 180 CFA investments committed to the sector by the ONEA,
francs, for consumption between 0 and 6m3. These the MDG of reducing by half the proportion of the
prices are progressive depending on the level of population without access to clean water could be
consumption. reached for urban residents: 5.83 million people should
thus have access to drinking water, and 7.88 million
During the last decade, performance in terms of to sanitation. In contrast, the situation in rural areas
access to clean water and sanitation has been highly is alarming. The laudable developments in terms of
contrasted in urban and rural areas of Burkina Faso. access to toilets in the urban milieu were not reproduced
Coverage rates are inadequate despite the efforts devoted in the countryside. If corrective measures are not put
to the subject over the past several years. In urban areas, in place quickly, the gap will be maintained or even
the proportion of the population with access to running widen further.
water rose from 66.3 per cent in 1993/94 to 88.5 per
cent in 2003. In rural areas, however, the rate fell from The estimated cost of meeting the MDG sanitation
4.8 per cent to 4 per cent over the same period. Similarly, goal is $116.25 million per year for the nine coming
the proportion of the rural population with access to years, with $88 million a year for the water sector and
well water fell sharply: it was estimated at 78.4 per $28.25 million a year for sanitation.
cent in 2003, compared to 90 per cent in 1993 and
92 per cent in 1999. The proportion of the budget devoted to the sector
is very low. Total public investment is estimated at
In 2003, 67.3 per cent of urban households were $17.76 million per year: $13.3 million for water and
located 15 minutes or less from their most frequently $3.96 million a year for sanitation.
used water source, while in rural areas this proportion 157
dropped to 49 per cent. The significant increase recorded In urban areas, the ONEA has invested around
between 1992/3 and 2003 (from 43 per cent to 49 per $30 million a year over the past nine years, but 70 per
cent) should, however, be noted. The increase in the cent of this investment is allocated to the Ziga project,
population using surface water (groundwater and rivers) a project to dam 200 million m3 of water managed by
as a source of domestic water supply should also be the ONEA and primarily designed to improve the
noted, having risen from 4.8 per cent to 17.4 per cent inhabitants of Ouagadougou’s access to a reliable and
between 1993 and 2003. plentiful supply of clean water. Additional funds remain
necessary for the water and sanitation sectors, as well
Improvements in sanitation have also taken place. as for urgent improvements to the sanitation system and
In urban areas, the proportion of households with management of waste water.
access to a flush toilet rose from 4.7 per cent to 9.9 per
cent between 1992/3 and 2003. An overwhelming The drinkinge water and sanitation sectors
proportion of the urban population (83.3 per cent) additionally require a management-assessment
continues, however, to use latrines. In rural areas, flush programme. This was recommended by the MDG
toilets are practically non-existent: 0.4 per cent in 2003. roadmap. In February 2006, with the technical and
The use of latrines is stable (14 per cent), and a large financial support of foreign partners (International
part of the population thus has no access to toilets of Development Agency, AFD, European Union, Swiss
any description. This situation increases the spread of and Danish co-operation, and Arab financial
infectious disease in the population, exacerbating institutions), the African Development Bank financed
poverty. It also increases mortality and morbidity rates. a complete assessment of sanitation and clean water
resources in semi-urban and rural areas. This assessment
In 2005, 8.03 million (62.5 per cent) inhabitants should permit the implementation of a national water
of Burkina Faso had access to drinking water and only and sanitation programme valid until 2015. Overall the
1.4 million (11 per cent) to sanitation. With the various great challenge confronting the government in these

Burkina Faso
sectors is to improve its capacity to implement the and two important measures were taken: the dialogue
various national strategies. between the government and the private sector was
strengthened and mechanisms for private sector
development were reinforced. The government and
Political Context and Human private sector actors discussed their problems during
Development Resources a conference in June 2004 and put forward potential
solutions. A series of projects and programmes are
Blaise Compaoré, president of Burkina Faso, has under way: i) an arbitration structure; ii) a business
been in power since 1987. In 2005, he was re-elected in formalities centre; iii) a support project to encourage
the first round with 80.3 per cent of the vote. In February competition and business development; iv) a programme
2006, the prime minister, Paramanga Ernest Yonli, who to strengthen the capacities of businesses in Burkina
has been in office since 2000, was reappointed. Despite Faso; v) infrastructure projects: a road freight and
the social stability that exists in Burkina Faso, a disturbing passenger terminal at Bobo; expanding the terminal at
social, political and military crisis rocked the country at Ouagadougou, renewing the refrigerated abattoirs at
the end of 2006. The altercation pitted soldiers against Ouagadougou and Bobo; vi) simplifying investment
police and ended with the death of five people and the formalities by creating a one-stop bureau and
destruction of many public resources (equipment and introducing an attractive framework for conducting
buildings). These incidents led to the cancelling of the business; and vii) lightening taxes and complying with
WAEMU and ECOWAS (Economic Community of regional reforms relating to business law, the organisation
West African States) summits scheduled for 22 and of financial and insurance markets and to a harmonised
23 December 2006 in Ouagadougou. In January 2007, accounting system.
158 the ECOWAS summit appointed Compaoré president
of the organisation. Burkina Faso has the highest illiteracy rate in the
world: 87.2 per cent of the population in 2003, more
The country has made progress in the fight against than double the average for sub-Saharan Africa. While
poverty. The incidence of poverty fell from 46.5 per cent measures have been taken to improve basic education
in 2003 to 43.7 per cent in 2005 and it is hoped that indices, the results remain poor. Between 1996 and
it will contract to 43.3 per cent in 2007 thanks to 2003, the net schooling rate went from 32.6 per cent
economic growth. Similarly, the incidence of rural to 39.9 per cent. However, great disparities persist
poverty should drop from 50.4 per cent in 2003 to between boys and girls (44.6 per cent and 35 per cent
48.1 per cent in 2007 and the incidence of urban poverty respectively in 2003) on the one hand, and between
should fall from 21.5 per cent in 2003 to 16.6 per cent urban and rural areas, on the other. Progress has been
in 2007. With the aim of attaining poverty reduction constant since 1996, but the gap between boys and girls,
goals, a strategy has been in place since 2000. Public on one hand, and between the rural and urban milieux,
bodies have been elaborating several initiatives to promote on the other, remain very large.
development in order to: i) reduce poverty and
vulnerability, as well as disparities in the population; ii) A set of measures, including the school initiative,
put in place macroeconomic policies to promote better Bright, under the Millennium Challenge Account
and sustainable growth; iii) accelerate the decentralisation (MCA) and the Ten-year Basic Education Development
process and modernisation of the public administration; Plan (TBEDP) seek to correct both inequalities between
and iv) engage the country in a process of regional cities and the country and between boys and girls. The
integration and globalisation. Bright school initiative costs around 6 billion CFA
francs and is financed by the MCA through the United
In November 2002, the government adopted a States Agency for International Aid (USAID). It is
policy aimed at improving the business environment. implemented by the Bright consortium of national
An action plan was subsequently introduced in 2004, and international non governmental organisations.

Burkina Faso
The TBEDP is used as a reference framework for the Malnutrition, including micro-nutritional deficiency,
interventions of all actors in the basic education system is severe, beyond the critical threshold of the World
for the 2000-09 period. Its broad aims are fourfold: i) Health Organization (WHO). Thus, 19 per cent of
increase supply of basic education and reduce disparities children, or more than 450 000, under the age of five
between types, geographic regions and the suffer from acute malnutrition (emaciation), while
socioeconomic situation of pupils; ii) improve the 39 per cent or nearly 925 000 children, have chronic
quality, relevance and effectiveness of basic education malnutrition (growth retardation), and 38 per cent are
and develop the consistency and integration between underweight for their age, representing more than
various levels and education methods; iii) promote 905 000 children. Finally, 21 per cent of women of
literacy as well as new types of alternative education; reproductive age are malnourished, and 15 per cent of
iv) develop capacities to guide, manage and evaluate newborns are underweight at birth.
the central and decentralised structures leading the
sector, as well as capabilities to co-ordinate foreign A further study of nutrition in the country revealed
assistance. The overall cost of the plan is estimated at that deficiencies in vitamin A, iron and iodine pose a
235 billion CFA francs. great problem for public health. Anaemia affects 91 per
cent of children aged between 6 and 59 months, 68 per
According to the UNDP Human Development cent of pregnant women and 54 per cent of women of
Report 2006, the net rates of primary schooling rose from reproductive age. Despite a national policy of salt
29 per cent in 1991 to 40 per cent in 2004. The net iodisation being in place since 1996, as well as obligatory
rate of secondary schooling was stable at 10 per cent sale of iodised salt, only 48 per cent of households have
in 2004. As a result, international donors introduced access to salt that is sufficiently iodised. Vitamin A
a strategic plan for the education sector with the aim deficiency is endemic is some areas, 13 per cent of 159
of bringing schooling rates up to 70 per cent for primary pregnant women suffer from night blindness, and use
schooling and 25 per cent for secondary schooling by of supplements remains low (DHS, 2003).
2010. Between 1998/99 and 2002/03, the proportion
of budget expenditure allotted to education rose from Malnutrition appears very early in the youngest
10 per cent to 14 per cent. In July 2005, a $12.9 million children, particularly those aged between six and
Millennium Challenge Account fund was invested to 23 months. Most worrying is that the situation has
encourage female education. deteriorated over the last 10 years, despite an
improvement in some health indicators and lower
A retrospective evaluation of the nutritional situation mortality. This is due to inadequate diet (in terms of
in Burkina Faso was carried out from 11 to quantity and/or quality), and recurrence of illnesses.
22 September 2006 under a joint government-UN These factors are themselves affected by other underlying
mission to assess and plan UN interventions in the factors such as food insecurity in households, problems
fight against malnutrition. Mortality figures are alarming accessing health services, lack of hygiene and sanitation,
with very high infant and juvenile mortality, respectively lack of treatment for mothers and children, and deeper
at 81 per 1 000 and 184 per 1 000 in 2003 causes such as poor education of mothers, household
(Demographic and Health Survey, DHS 2003). In poverty or the status of women.
fact, almost 50 000 children under the age of 12 months
and more than 110 000 children under the age of five Illnesses such as malaria and schistosomiasis remain
die each year, meaning almost 50 per cent of infant endemic. Furthermore, each year during the Harmattan
mortality occurs under the age of 12 months. Mortality wind season, from January to April, meningitis is
thus remains very high despite having fallen since 1998. pervasive and kills between 1 000 and 1 500 people.
Weaknesses and poor organisation in the health system
It is estimated that 50 per cent of deaths in children make it difficult to organise effective immunisation or
under the age of five are due to malnutrition. vaccination campaigns.

Burkina Faso
The problem of avian flu from now on presents a the fight against avian flu would become national in
fairly acute challenge. In April 2006, the health scale. Finally, measures were introduced to raise
authorities announced that an outbreak of avian flu had awareness among various groups, particularly among
been detected at Gampela, a town about 15 kilometres poultry farmers. In October 2006, a quick test on
from the capital, Ouagadougou. Measures were been laying hens came out positive in Sector 30 of
taken to inform and protect local people. Imports of Ouagadougou and led to the implementation of
poultry and poultry products from affected countries phytosanitary policing measures (slaughter, disinfection,
were banned. An inter-ministerial ruling was medical monitoring of personnel and promises of
promulgated involving a number of ministries so that compensation procedures).
160

Cameroon
Yaoundé
key figures
Cameroon
T HE CAMEROON ECONOMY appeared to regain continued very high dependence on oil revenues does
momentum in 2006 after its sluggish performance in not augur well for sustained improvement in the
2005. Real GDP growth rose to 3.8 per cent in 2006 government’s finances or in the external accounts. The
from 2.8 per cent recorded in 2005, and the economic pace of structural reforms remains slow and there are
upturn is expected to continue. Real GDP growth is many gaps in the effort to improve
High dependence on oil
projected to reach 4 and 4.1 per cent in 2007 and governance. The structural deficit
revenues threatens
2008 respectively, with domestic investment rising due in electricity remains a major
sustainability in growth
to increased confidence in the economy following the bottleneck that hinders economic
and development, while
government’s recent reforms, which culminated in development. Limited access to
governance reforms
Cameroon reaching the completion point of the Heavily safe drinking water and sanitation
are too slow.
Indebted Poor Countries (HIPC) process in 2006. in the country constitutes an
affront to human dignity. In the area of governance,
Although the recent reforms have begun to yield Cameroon enjoys relative political stability, but it needs
positive dividends, especially in the management of to address the rampant abuse of human rights and the
public finances, with continuing sound monetary and perceived high level of corruption.
financial indicators, much remains to be done. The
163
Source: IMF and Ministry of Finance and Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/063478386420

Cameroon
Recent Economic Developments thermal power plant at Kribi. In 2006, SNH signed
a production-sharing agreement with the French-based
Following its sluggish economic performance in firm Perenco to develop the South Sanaga gas field.
2005, the Cameroon economy appeared to regain As for minerals, two bauxite exploration permits were
momentum in 2006 when real GDP growth rose to issued in 2004 to the Hydromine Company in the
an estimated 3.8 per cent from the 2.8 per cent recorded Minim Martap and Ngaoundal areas. These vast
in 2005. The improved economic performance in deposits could supply the Alucam smelter, especially
2006 was led by the petroleum sector and supported after it has increased its capacity, and could also be
by gains from recent reforms. It is anticipated that exported. Furthermore, plans are far advanced for the
the upturn will continue in 2007 and 2008, with Geovic Company to begin cobalt mining in some of
projected growth rates of 4 and 4.1 per cent respectively. the forest areas of the country.
These stronger growth rates are expected to reflect
higher levels of domestic investment as the economic These efforts to develop mineral extraction are not
reforms take root. commensurate, however, with the extent of the country’s
mineral wealth. Indeed, exploitation has remained
The growth performance in 2006 was broad-based, minimal except for the small-scale, clandestine mining
observed across most sectors of the economy. In of gold and diamonds that occurs in some eastern parts
particular, there was a substantial rise in mining activity of the country. The situation appeared to change in
as well as major improvements in manufacturing and 2006, when the Australian firm Sundance Resources
the telecommunications sector. Mining activity, which acquired Cam Iron, which owns an exploration permit
accounted for a 9 per cent share in total GDP in 2005, for an 875 square kilometre prospect in the south-
164 picked up further in 2006, driven largely by increased eastern MBalam area. Also in 2006, Geovic Cameroon,
crude oil production and the high price of crude on the local subsidiary of a US-based firm, completed a
the international market. Oil output rose to an estimated pre-feasibility study on the extraction of cobalt and
average of 94 386 barrels per day (b/d) in 2006 from nickel. It is expected that about 4 000 tonnes of cobalt
the average 82 337 b/d in 2005. Nonetheless, and 3 000 tonnes of nickel will be produced per year
Cameroon’s oil output remained well below the peak as from 2007. Nevertheless, Cameroon needs to do more
of 186 000 b/d attained in 1985. Since 1985, Cameroon to increase mineral extraction, at least of its known
has not seen any significant discoveries, and production deposits, which include rutile (titanium ore), of which
from the maturing oil fields has continued to stagnate. there are 3 million tonnes of reserves in the Akonolinga
Recently, the government has shown a commitment to area; bauxite, of which there are an estimated 1 billion
reviving the oil industry by attracting oil companies to tonnes of reserves; and iron ore, of which there are an
develop marginal and deep-water offshore fields. To this estimated 300 million tonnes of deposits, particularly
end, the national oil company (Société national in Kribi. It is ironic that in spite of such known deposits
d’hydrocarbures – SNH) signed two production-sharing the government has not revised the mining law it passed
agreements in 2005 and 2006 with Total E&P to in 2001 to replace the outdated 1964 mining code.
explore for oil in the Dissoni and Bomana offshore
blocks in the Rio del Rey basin. Cameroon’s manufacturing sector is more diversified
than those of its neighbours. In 2005, manufacturing
Cameroon has intensified its efforts in exploring activity contributed about 18.9 per cent of total GDP.
for natural gas exploration as well as in crude oil The overall output of the sector increased by 5.1 per
production. In addition, the country’s vast mineral cent in 2006, as against 4.7 per cent in 2005. However,
deposits offer hope of continuing mining activity in the various components of manufacturing displayed
the country for some time to come, when the oil uneven performance. Aluminium output increased by
deposits run out. A fairly large gas field has been 6.2 per cent, with production of 92 000 tonnes, buoyed
discovered at Sanaga, which could supply the planned by the continuing high international price of the

Cameroon
Source: Authors’ estimates based on Ministry of Finance and Economy data.

http://dx.doi.org/10.1787/283154630854
commodity. The agro-food sector, badly hit by a 4 per crops. In 2005/06, cocoa output rose to 198 000
cent decline in household consumption in 2005, rose tonnes, up from 116 000 tonnes in 1999/2000. Coffee
by an estimated 3.5 per cent in 2006. Beverages, in production rose to 68 000 tonnes in 2005/06 from
contrast, fell by 9 per cent in 2006, prolonging the 65 000 tonnes recorded in the previous season. Similarly,
12.5 per cent decline recorded in 2005. cotton production has continued to increase despite the
recent drop in the international price of the commodity.
The growth of the manufacturing sector, though Cotton output rose slightly from 273 000 tonnes in
relatively robust in 2006, continued to be limited by 2004/05 to 274 500 in 2005/06. Cotton producers in
structural problems, particularly inadequate energy Cameroon have been somewhat cushioned from the
supply, aggressive competition from Asia and smuggling, international price fall by the policy of the cotton 165
which gives an unfair advantage to informal activity. development agency (Société de Développement du
Electricity remains expensive in Cameroon and is always Coton – Sodecoton) of ring-fencing farm-gate prices
in short supply, reflecting the country’s inability to from the volatility of world prices.
exploit its huge hydroelectric potential. Cameroon’s
hydro resources are the second richest in sub-Saharan Cameroon’s cash crop production, particularly
Africa (after the Democratic Republic of Congo), but cocoa and coffee, has been unable to reach its full
scarcely 1 per cent of this potential has been harnessed. potential owing to a number of constraints – primarily
Hydroelectric power accounts for about 77 per cent of the ageing of plantations, the high costs of imported
the country’s installed generating capacity of 933 MW, inputs, the poor state of rural infrastructure and limited
but the recent depletion of water levels in the main dams, credit facilities – all of which have affected productivity
along with the poor condition of power plants and and reduced quality. The government is pursuing plans
transmission equipment, have cut capacity by about one- to boost output by increasing the area under cultivation,
third. Thus, power supply remains well short of demand, introducing higher-yielding strains and providing more
currently estimated at 1 000 MW. technical, financial and institutional support to farmers.
In 2006, the government set up a fund to finance the
Cameroon has a rich, varied agricultural sector that development of the coffee sector. In addition, the cocoa
in 2005 accounted for about 20.5 per cent of GDP. In development agency (Société de Développement du
2006, the sector expanded by 4.8 per cent, up from cacao – Sodecao) has been restructured and placed
4.3 per cent in 2005. The expansion in agricultural under new management.
production in 2006 was experienced across all the sub-
sectors. The cash crops – cocoa and coffee – have seen Food crop production increased in 2006, benefiting
increased production in recent years following the from good climatic conditions. The thriving sub-
recovery in their international prices, which seems to regional market for Cameroon’s food crops – particularly
have enticed farmers back into production of these tubers, plantain, maize, sorghum and millet in Nigeria,

Cameroon
Gabon and Equatorial Guinea – continues to serve as Tourism is important in Cameroon, but the country
a demand pull for increased production. has yet to fulfil its enormous potential by exploiting
to the full its nature reserves, spectacular rock pinnacles
The timber industry remains an important and attractive beaches. Although tourism expanded by
component of the economy, contributing about 13 per an estimated 6 per cent in 2006 (as against 4.2 per cent
cent of exports in 2006. The sector’s growth rate rose in 2005), with the number of visitors rising to 467 500
from only 2.1 per cent in 2005 to 3.8 per cent in 2006. (from 411 000 in 2005), the sector continued to be
While some forestry firms lost their licences in 2005 hampered by expensive airfares, cumbersome procedures
as part of the government’s re-organisation of the sector, for obtaining visas, and inadequate and underdeveloped
new forestry concessions granted in late 2005 tourist infrastructure. The government appears to be
contributed to the upturn in 2006. Prospects for the making efforts to enhance Cameroon’s tourist
industry remain bright in 2007 and beyond as the attractions. Since 2005, it has opened tourist promotion
opening up of new areas for mining, particularly forested offices in key foreign markets. In addition, a national
areas for cobalt mining, as well as the planned opening tourism council has been established to oversee the
of the Lom Pangar dam in 2009, could also boost promotion of the industry, and the government is
timber extraction. considering issuing tourist visas on arrival at airports.
These measures, however, need to be supplemented by
The services sector expanded by an estimated 4.9 per efforts to tackle the perceived high crime in the country,
cent in 2006, following the 4.7 per cent growth rate which deters visitors on safety grounds.
recorded in 2005. Services contributed about 45 per
cent of GDP in 2005. In 2006, telecommunications Cameroon’s economic growth is traditionally driven
166 recorded a 52.5 per cent increase in subscribers, by domestic demand, although exports remain a
especially for mobile phones (up 54.6 per cent), partly significant driver. In 2006, slower growth in domestic
as a result of extended coverage by mobile phone consumption was a drag on growth. This was offset by
operators and Camtel. However, the tele- higher investment, however, especially from the public
communications infrastructure in Cameroon is still sector. It is anticipated that high investment will
not good enough to support the kind of quality call continue to propel growth in 2007 and 2008. The
centres seen in countries such as Senegal. Ongoing reaching of the HIPC completion point in 2006 is
projects to modernise telecommunications, including expected to boost public investment and consequently
the fibre-optic network along the Chad-Cameroon private investment in 2007; projects already in the
pipeline, are investments in the right direction. pipeline include the construction of the Lom Pangar
1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 3.9 4.9 15.0 12.0 10.0
Private 11.2 14.5 5.0 5.0 5.0
Consumption 81.2 81.7 3.0 4.0 4.1

Public 9.1 9.9 7.9 6.3 4.0
Private 72.1 71.7 2.4 3.7 4.1
External sector 3.7 -1.0

Exports 21.4 20.4 3.4 2.2 2.0
Imports -17.7 -21.4 4.4 4.5 4.7
http://dx.doi.org/10.1787/337472506108

Cameroon
dam (between 2007 and 2010) and of a $900 million projects would be HIPC-funded in 2005, and these
hydroelectric power plant at Nachtigal. Other major were put in the national budget for 2006.
investments expected include the building of an
86 billion CFA francs thermal power plant at Kribi, a In 2006, improvements in the government’s fiscal
cobalt processing plant (by Geovic), a new cement performance were reflected in an increase in the overall
plant at Limbe and major road projects. fiscal surplus from 3.6 per cent of GDP in 2005 to 4 per
cent in 2006. Although the budget is projected to
remain in surplus, the balance will fall to 2.9 per cent
Macroeconomic Policies in 2007 and to 2.6 per cent in 2008 owing to higher
spending (especially capital spending) and a slowdown
Fiscal Policy in oil revenues.
Cameroon is implementing a new Poverty In 2006, the government’s total revenue increased
Reduction and Growth Facility (PRGF) programme to 18.8 per cent of GDP (18.1 per cent in the preceding
with the IMF for the 2006-08 period, aimed at year). The improved performance in 2006 was the
strengthening its fiscal position, preserving result of increases in oil revenues and grants. Oil revenue
macroeconomic stability, promoting investment and rose as a result of increased production and higher
boosting poverty reduction. prices on the international market. Non-oil revenue
remained stable as a percentage of GDP after tax
The main challenges of Cameroon’s public finances increases and improvement in the tax and customs
have been to increase non-oil revenue to compensate administrations. The government implemented a four-
for the expected gradual decline in oil production and fold increase in windscreen licences in 2006, and the 167
to control recurrent expenditure. In 2006, the introduction of a value-added tax (VAT) on mineral
government made great efforts to improve its fiscal water and non-alcoholic beverages took effect during
performance, especially as regards monitoring spending the year as well. In addition, the government took
and transparency of public accounts. In a novel move, measures to reduce tax evasion in the forestry sector.
the 2006 budget was presented to parliament before the
start of the budget session so that it could be thoroughly On the expenditure side, although the government’s
examined. In addition, the government drew up plans programme in 2006 was expansionary, expenditure
to implement the Extractive Industries Transparency was held to the target levels through prudent
Initiative (EITI) and gave a commitment not to use management. Total government expenditure increased
surplus oil revenue to finance recurrent spending. to 14.8 per cent of GDP in 2006 (up from 14.6 per
Further, a determined effort was made to adhere to the cent in 2005). The spending increase in 2006 was due
integrated budget management system introduced in largely to higher capital expenditure, with continued
2005, which provides running accounts, including reconstruction of the bridge over the Mungo river and
monthly updates on budget execution that compare the initiation of a national programme of road
commitments and disbursements. Efforts were also rehabilitation. Moreover, spending by local authorities
made to improve execution of capital spending through was boosted in 2006 following the government’s reversal
a medium-term expenditure framework (MTEF) in of its policy of retaining a proportion of municipal
construction, health, education and rural affairs. revenues at the central level. Furthermore, the public
Moreover, in 2006 the government began to incorporate sector wage bill was held in check as a result of
HIPC spending into the budget to allow proper continuing efforts to remove “ghost workers” from the
supervision. The prior arrangement, whereby the public payroll. In addition, the substantial debt write-
spending of HIPC funds was agreed after approval of off granted under the enhanced HIPC initiative and
the budget, was considered to slow down disbursement the Multilateral Debt Reduction Initiative (MDRI)
of HIPC funds. Consequently, it was agreed that specified exerted downward pressure on debt service obligations.

Cameroon

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 9.7 10.0 9.3 10.4 10.3 10.3 10.3
Grants 0.0 0.7 0.2 0.5 0.6 0.4 0.3
Interest 2.3 2.3 2.0 1.5 1.4 1.2 1.1
Primary balance 4.1 3.4 1.5 5.0 5.4 4.1 3.7

Overall balance 1.8 1.1 -0.5 3.6 4.0 2.9 2.6
http://dx.doi.org/10.1787/475751853845
Despite the government’s efforts to exert fiscal influenced by those of the European Central Bank
control, the country’s public finances have persistent (ECB), with the BEAC’s rate broadly reflecting
structural weaknesses. They remain very dependent movements in the ECB’s main intervention rate.
on oil revenue (28 per cent of total revenue, excluding
grants, in 2006) at a time of great uncertainty over the In 2006, monetary policy was more accommodating
168 continuation of production increases. The domestic of the expanding economic activity. By end-September
effort to fund the budget through taxation is rather weak 2006, the money supply (M2) had risen by about
because the tax base has remained narrow, given the 12 per cent, compared with a rise of only 2 per cent
large informal sector. The budget outcome may suffer for the same period in 2005. Moreover, interest rates
further from reduced revenue collection, as the followed a downward path. In March 2006, the BEAC
Economic Partnership Agreements (EPAs) with the reduced its discount rate by 25 basis points to 5.25 per
European Union (EU) in 2008 will reduce customs cent. Short-term rates in the financial system followed
revenue. A particular problem of Cameroon’s fiscal suit, with the average lending rate falling from 18 per
system is the huge proportion of current expenditure cent in 2005 to 15 per cent in 2006. The average
(80 per cent of total government spending), with the deposit rate also fell, but very slightly from 5 per cent
wage bill alone accounting for over 30 per cent of the in 2005 to 4.5 per cent in 2006.
total in 2006 despite the effort to purge “ghost names”.
Moreover, capital expenditure (only 20 per cent of Inflation rose from an average of 2 per cent in 2005
total spending) is never entirely disbursed, reflecting to an estimated average of 4.5 per cent in 2006, mostly
major absorption problems that could hamper as a result of the increase in taxes, particularly VAT, and
implementation of future investment plans. the rise in fuel prices. Cameroon does no oil refining,
so the world price of refined oil was partly (and with
Monetary Policy a delay) passed on to the pump price, which rose
16 CFA francs in August 2005, then 4 CFA francs a
The monetary policy of Cameroon is determined month between October and December 2005, and
by the regional central bank, the Bank of Central then by a further 12 CFA francs in mid-2006. These
African States (BEAC). The main monetary policy prices hikes, in turn, significantly pushed up the price
objectives of the BEAC are to control inflation and of transport. The prices of consumables, including
maintain the stability of the CFA franc, which is pegged tobacco and beverages, rose also as a result of tax
to the euro. Accordingly, the BEAC’s policies are heavily increases. However, inflation is expected to settle back

Cameroon
to about 2 per cent in 2007 and 2008 as prudence in in 2006. China has also emerged as a major supplier
the government’s fiscal programme and sound monetary of imports, although it is not yet a major buyer of
policies take hold. Cameroonian goods.
External Position Developments in Cameroon’s current account

balance largely reflect fluctuations in merchandise
Cameroon stands to gain considerably from the trade, which in turn is driven by oil export earnings.
creation of an integrated regional market as part of the Cameroon’s current account has traditionally been in
future regional EPA with the EU. The country is a deficit, as weaker trade balances have been compounded
major pillar in the CFA franc zone, accounting for by persistent deficits on the services and income accounts
over 50 per cent of the wealth in the CEMAC countries. owing to heavy spending on shipping, insurance, foreign
The port of Douala is the main shipping port for travel and other services.
countries in the sub-region. The country’s location, its
relatively large economic clout and the relative In 2006, the trade account showed a relatively
diversification of its productive capacity all give it strong surplus equivalent to 3.1 per cent of GDP, up
growth potential in a context where regional trade can from 1.5 per cent of GDP in 2005. The strong
only expand. performance in 2006 was due to the high international
oil price and rising oil production, as well as stronger
Currently, however, Cameroon trades very little performance of non-oil exports. The trade surplus in
with the other CEMAC countries. The CEMAC 2006 thus rose to an estimated $1.2 billion from
accounted for only 4 per cent of its exports and 3.5 per $215 million in 2005, and as a result, the current
cent of its imports in 2006, although this should not account balance moved out of its persistent deficit to 169
be expected to hinder negotiations for an EPA between register a small surplus equivalent to 0.3 per cent of GDP
the EU and CEMAC. The second (“regional”) phase in 2006 – the first time in about a decade. The trade
of these talks started in 2006, and a full draft agreement surplus is forecast to decline in 2007 and 2008 on
is expected by end-2007. Cameroon’s main trading account of a more than proportionate fall in exports
partners remain the EU countries, which accounted for against imports, and consequently the current account
about 58 per cent of exports and 45 per cent of imports balance should return into deficit.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 3.7 1.7 0.0 1.5 3.1 2.3 1.8

Services -2.2 -1.4 -1.8 -1.5 -1.4 -2.2 -1.9
Factor income -4.8 -3.9 -2.6 -2.8 -2.5 -2.2 -1.6
Current account balance -2.1 -2.0 -3.4 -1.5 0.3 -1.0 -0.7
Source: IMF data estimates (e); and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/605135178485
Cameroon had accumulated substantial external burden, as measured by the debt service ratio, is also
debt, estimated in 2005 at $9.5 billion, or 61.5 per cent estimated to have fallen from 12.4 per cent in 2005 to
of GDP. As a result of the country reaching the HIPC 7.7 per cent in 2006. Since reaching the HIPC
completion point in May 2006, the overall debt stock completion point, Cameroon has benefited from debt
fell to $3.7 billion in that year. The country’s debt relief amounting to $1.3 billion and reduced its debt

Cameroon

170 Source: IMF.

http://dx.doi.org/10.1787/543617210040
service obligations by about $4.9 billion in nominal of the biggest drags on the growth of the otherwise
terms. In addition, Cameroon has become eligible for vigorous formal private sector.
debt relief under the MDRI, an estimated amount of
$1.1 billion. As part of the HIPC debt write-off, in June The competitiveness of business is limited by the
2006 Cameroon reached an agreement with the Paris high cost of production factors and the poor business
Club of creditors to reduce bilateral debt by a further environment. Administrative delays and bureaucratic
$921 million. In addition, the Paris Club creditors bottlenecks force entrepreneurs who want to start a
have committed themselves to further bilateral debt relief business to go through 12 steps that require an average
of $2.6 billion. of 37 days in total to complete. Moreover, contracts
are extremely difficult to enforce: 58 procedures are
needed to enforce a contract, requiring an average of
Structural Issues 800 days at a total cost of 36 per cent of the value of
the claim.
Recent Developments
The private sector and the government in Cameroon
Although Cameroon has made progress in structural seem to have developed mutual mistrust, which the
reforms under the PRGF – including improving public government is now trying to change. In 2006, the
financial management, strengthening the judiciary and government continued with efforts to re-establish
enhancing transparency in the petroleum sector – much dialogue with the private sector, including expansion
remains to be done, especially in the areas of improving of the 2005 inter-ministerial committee to include the
the business climate, private sector development and private sector, a meeting with all the country’s main
privatisation. The poor business climate is probably one business operators in January 2006 and consultation

Cameroon
of the private sector in drawing up the 2006 national lack access to loans. In addition, there are regular
budget. Nonetheless, increased private sector complaints from bank customers about high charges,
participation in the Cameroonian economy will also reflecting the lack of active competition in the sector.
depend to the government’s ability to reduce the high The World Bank is currently helping BEAC to improve
levels of crime and corruption, which add to the cost the efficiency and security of the regional payments
of doing business in the country. system, with the introduction of an electronic bulk
clearing system and a real-time gross settlement
Privatisation did not advance much in 2006, but mechanism for the instant settlement of transactions.
as part of the PRGF the government has committed
itself to revamping the process. The major state firms Access to Drinking Water and Sanitation
still to be divested include the national water company
SNEC, Camtel, Sodecoton, Camair and the CDC Cameroon is well-watered, with uneven distribution
agro-industrial complex. Concerning the privatisation of rainfall from one part of the country to another. The
of Camair, the winner of the tender process was selected country boasts major underground water resources
in June 2006, but the privatisation deal is yet to be spread over the country’s main water-bearing areas. In
finalised. According to the government’s plans, SNEC all, the country has at least 120 billion m3 of useable
will be disposed of through a leasing arrangement; groundwater resources, unevenly distributed.
takers were sought at a meeting of investors at end-2005, Groundwater resources are the main source of drinking
but no firm offers have so far been forthcoming. Camtel water in rural areas.
was put to tender in mid-2006 with 51 per cent of its
shares on offer. In order to attract investors, Camtel’s A number of players are involved in the management
mobile phone licence will be divested at the same time of the water and sanitation sector. These include not 171
as its fixed-line business. The future of Sodecoton only public and private structures but also civil society.
remains very unclear, in view of its difficulties stemming The sector’s co-ordination is the responsibility of the
from very low world cotton prices, but talks with the Ministry of Water Resources and Energy (MINEE),
French firm Dagris are continuing. Privatisation of the which is in charge of designing, preparing and
CDC is set for 2007. implementing the national policy and of co-ordinating
and monitoring operations and projects concerning
Within the financial sector, the banking sector has water and sanitation in urban and rural areas. It is also
become quite solid after the restructuring that transferred responsible for planning projects, making an inventory
supervision of the sector to the Banking Commission of water resources and helping to set water and sanitation
of Central Africa (COBAC). The banking system rates. In the sanitation sub-sector, MINEE’s
comprises ten commercial banks. The loan recovery rate responsibility is limited to the management of
of the sector has improved significantly to about 139 per wastewater. The Urban and Rural Land Development
cent in June 2006, and six of the banks had liquidity Mission (MAETUR), under the supervision of the
ratios in excess of 200 per cent in 2006. Prudential ratios Ministry of State Property and Land Affairs (MINDAF),
are rising steadily, and almost all the banks meet the is responsible for putting in place water supply and
six key ratios set by the COBAC. sanitation systems in low-cost housing estates. Other
ministries with cross-cutting remits are involved in the
The entire sector, however, is dominated by just three preparation and implementation of the government’s
banks, which hold over two-thirds of all loans and water and sanitation policy. So-called urban
deposits – a situation that undermines competition. communities are responsible for managing sanitation
Furthermore, despite the relative soundness of the services and the use of equipment.
sector, the rate of financial intermediation in the country
is rather low. Fewer than 10 per cent of households have The proportion of Cameroon’s population with
bank accounts, and large areas of the economy still access to safe water was estimated at 57.8 per cent in

Cameroon
2005. For urban areas, the estimate was 77 per cent, of adequate financial resources which enable them to
while in rural areas, water supply projects have made assume these responsibilities. The government’s plan
it possible to reach a service rate of 42 per cent. Access to establish a National Water and Sanitation Fund,
to sanitation services is difficult for most of the which is expected to mobilise resources for the sector,
population, especially the poorest who live in areas will contribute in the long run to lifting the constraints
with little infrastructure. Indeed, the rate of access to facing the use and management of sanitation structures.
adequate wastewater drainage systems is estimated at
17 per cent in urban areas and 15 per cent in rural areas. Cameroon’s national water and sanitation policy
Where they do exist, such systems consist mainly of incorporates the guiding principles of the millennium
natural channels (mostly rivers) or underground outlets MDGs. The main lines of this policy are as follows:
that are also used to evacuate household garbage, solid i) promoting access to drinking water for all
waste and wastewater, which stagnate and end up Cameroonians by 2025; ii) promoting a demand-
clogging the systems and causing floods during the driven approach to the supply of water and sanitation
rainy season. services; iii) decentralising the planning and
management of drinking water supply and sanitation
Cameroon’s water and sanitation sector faces a services; iv) building capacity; v) redefining the role of
number of institutional, technical and financial various institutions involved in water and sanitation
constraints. The main institutional constraint stems services with a view to greater participation on the part
from the large number of sector players, leading of the population; vi) supporting the private sector; and
sometimes to fragmentation and overlapping of vii) redeploying the private sector as facilitator.
responsibilities and poor co-ordination of their
172 operations. The National Water Committee (CNE), The government has defined public sector guidelines
established to co-ordinate activities in the water sub- for the water and sanitation sector with the primary
sector, is not yet operational. Regarding urban sanitation, aim of redefining the role and responsibilities of the
the following bodies are engaged in similar and unco- government in the management of infrastructure and
ordinated activities: urban communities, the Ministry basic services, especially in rural areas. This implies
of Public Works, the Ministry of Urban Development replacing the supply-based approach by a demand-
and Housing (MINDUH) and some non-governmental based approach that takes into consideration the needs
organisations (NGOs) involved in the construction of of the population, especially the most underprivileged.
tertiary structures. In the short term, the government’s strategy is to be
implemented through a partnership of the three leading
On the technical front, there are weaknesses in the players in urban development – local authorities in
management of sanitation infrastructure and services. urban areas, the private sector and civil society – within
Municipal technical departments, local contractors the framework of the “urban contract” concept. Urban
and consulting firms often lack the skills necessary to contracts are an institutional mechanism which enables
conduct studies and works properly, especially the the government and local authorities to express their
design and implementation of labour-intensive works. urban planning priorities and facilitates the introduction
Poor institutional and human capacity at the levels of of cross-financing. In the context of this participatory
elected officials, officers and other sector players, management policy, urban communities, in partnership
together with a lack of project monitoring and with grassroots communities and the private sector,
evaluation, also hinder the sector’s development. join forces with the population in establishing and
maintaining infrastructure.
Lack of adequate funding for the sector is another
major obstacle to its development. In the context of Several bilateral and multilateral donors have been
decentralisation, the transfer of competencies to local involved in the water and sanitation sector of Cameroon
communities has not been accompanied by allocation in terms of project and programme financing (see Box 1).

Cameroon
The Yaounde Sanitation Project: How the African Development Bank Group Is Making
a Difference in Water and Sanitation Provision
The population of Yaoundé, capital of Cameroon, has increased by 6 per cent every year since the early
1990s and stands today at nearly 1.5 million. The Survey on the Living Environment of Yaoundé’s population
(CAVIE), carried out in 2002, highlights the predominance of so-called squatter areas, which cover about
62.4 per cent of the city’s area. The main rainwater drainage systems are regularly blocked by all types of
solid waste. As a result, during the rainy season, floods (15 to 20 major floods annually) totally disrupt the
city’s socio-economic activities and especially those of the squatter areas. Some 53 000 persons (or about
9 000 households) are subject to regular floods, and a further 243 000 persons (or around 40 000 households)
to occasional floods. Thus, quality of life is very adversely affected, as the people must dwell in damp, filthy
and unhygienic surroundings.
In addition to the discomfort caused by these floods, their effects on health, the environment and the
economy are enormous. In terms of health, not only do floods cause latrines to overflow, thus polluting
drinking water wells, but they create breeding sites for mosquitoes and the waste carried by the rainwater
accumulates, thereby increasing the spread of waterborne diseases. Concerning the environment, floods cause
soil erosion, land subsidence and slides, and the pollution of the Akomnyanda water treatment station, which
supplies Yaoundé with drinking water. As for the economy, the floods cause the destruction of houses and
businesses, loss of income for traders, etc. In short, the lack of rainwater drainage in Yaoundé, where rainfall 173
is considerable (nearly 2 000 mm a year), has a far-reaching impact on the population, most of whom already
live in poverty.
In order to control flooding in Yaoundé and address the difficulties inherent in its increasing filth, the
government prepared a Yaoundé City Sanitation Master Plan (PDA), which was financed by the African
Development Bank Group. As a follow-up, a project was conducted on the emergency phase of Yaoundé
City Rainwater Drainage, consisting mainly of the re-calibration of the Mfoundi Canal and the cleaning
of the collectors. An update of the project engineering designs was also financed by the African Development
Bank Group. The Bank Group is also financing the entire foreign exchange cost of the Yaounde Sanitation
Project. This project is to: i) contribute to rainwater drainage in Yaoundé City; ii) contribute to improving
the living conditions of the city’s population; and iii) build the capacity of the sector’s stakeholders. The
project comprises the development of sanitation infrastructure, capacity building and project management.
Specifically, it involves a study for landscaping along the Mfoundi Canal; the establishment of a project
monitoring and evaluation system; construction of a canal 4.32 kilometres long; protection and cleaning
of three underground collectors, about 2.35 kilometres long; development of two maintenance roads on
either side of the canal and the construction of access ramps; construction of two footbridges, a rail bridge
and a road bridge; construction of four disposal structures at forks in the canal; construction of 50 containers
and installation of 50 garbage bins along the canal; development of the areas around the canal (4 kilometres
of paved footpaths, planting of trees and gardens, installation of 54 public benches and public lighting,
construction of two parking areas of 400 square metres each and two shelters); and training Cameroonian
sanitation professionals and other staff. The project is being implemented over four years, starting January
2006 and scheduled for completion in December 2009.

Cameroon
In particular, the Japanese government, the French whereby the Ministry of Territorial Administration
Development Agency (AFD), the African Development manages the electoral process. The government is yet
Bank, the Islamic Development Bank (IDB), Belgian to provide details of this new body, but even the
Technical Cooperation, German Financial Cooperation Cameroonian opposition has already hailed the move
(KFW), the European Union, German Technical as a significant step in the right direction.
Cooperation (GTZ), the Canadian International
Development Agency (CIDA), United Nations agencies Nonetheless, Cameroon still has major hurdles to
such as the UNDP and UNICEF, NGOs and various clear in improving governance. Continuing flagrant
associations. The World Bank has also been involved abuse of human rights constitutes an indictment of the
in major road network and sanitation projects. The government. The security forces are often accused of
AFD is involved in rural water supply projects and has human rights abuses, including the use of excessive
also contributed funds for the rehabilitation of force, without any response or redress from the
deteriorated sanitation and road networks. The IDB government. As reported by the International Centre
funds rural water supply projects. Belgium’s Technical for Prison Studies, Cameroon has the second-highest
Cooperation Department also finances rural water prison occupation rate in sub-Saharan Africa, with two-
supply projects, particularly in the far north of the thirds of the inmates awaiting trial. In addition,
country, and projects to rehabilitate and extend water corruption remains the bane of socio-economic activity.
and rainwater drainage systems in Maroua. In addition Cameroon’s ranking in the Transparency International
to rural water supply, KFW has financed the corruption perception index has continued to deteriorate,
development of water and sanitation services in four dropping from 129th in 2004 to 137th in 2005.
secondary towns. It remains the responsibility of
174 Cameroon to complement these forms of assistance For sub-Saharan Africa, Cameroon is a relatively
with effective management of the water and sanitation high-income country in per capita terms, at $862 per
systems to improve access for the population. capita. It nonetheless remains a poor country, where the
national household survey ECAM II (2001) indicated
that 40 per cent of the population lived below the poverty
Political Context and Human line (of 232 547 CFA francs per adult per year). The 2005
Resources Development UN Human Development Index put Cameroon in
148th place out of 177 countries. As with most African
Cameroon has remained a politically stable country countries, poverty in Cameroon is a rural phenomenon.
over the past 20 years, and the government is intensifying In recent years, however, poverty in towns and cities has
efforts to strengthen the political process and deepen become worse due to increasing urbanisation. A shortage
the country’s democratic propensities. President Paul of housing and inadequate public facilities underlie the
Biya, in office since 1982 with the full support of the poverty situation in towns and cities. As mentioned
ruling party, has consolidated his grip on power following above, the structural deficit of electricity remains one of
his re-election for a seven-year term in October 2004. the main hindrances to poverty reduction, as household
access to electric power is rare and unevenly distributed
The government continues to make efforts to among regions. The third national demographic and
improve the democratic and administrative governance health survey (EDSC-III), carried out in 2004 and
of the country. Following measures taken in late 2005, published in June 2005, found that 52.8 per cent of all
such as the requirement for public officials to declare households (and 84.5 per cent in rural areas) had no
their assets and property, and the establishment of an electricity, a situation that undermines individuals’ efforts
anti-corruption commission, the government made to move up the economic ladder.
further efforts to improve governance in 2006. In
particular, it announced in early 2006 the creation of In the education and health sectors, Cameroon has
an independent electoral body to replace the system better facilities than the average sub-Saharan country,

Cameroon
but major efforts continue to be needed to address The government of Cameroon attaches great
regional inequalities. The results of the ECAM-II importance to the health sector, and health performance
(2001) survey indicated a fairly high and rising literacy is satisfactory relative to the rest of sub-Saharan Africa.
rate of 68 per cent, up from 47 per cent in 1987. Net In 2006, government outlays on health amounted to
school attendance was 77.8 per cent at the primary level about 5.8 per cent of total spending. The government
but fell very significantly to 32.8 per cent in secondary is making special efforts to combat Malaria and AIDS,
school. The even greater problems at the tertiary levels the two main causes of death in Cameroon. In an effort
may be a disincentive for pupils who might otherwise to reduce the spread of malaria, the price of treated
pursue secondary education. The state universities in mosquito nets was reduced from 5 000 to 3 500 CFA
Cameroon are having severe problems coping with an francs in 2004, but only 20 per cent of households have
unprecedented influx of new students. As a result of at least one such net (17 per cent in the countryside).
the country’s policy of granting admission to anyone The HIV infection rate is estimated at 5.5 per cent in
who has completed secondary school, university facilities the 15-49 age group. The national anti-AIDS plan
are overstretched and severely overcrowded. drawn up in 2000 has been revised for the 2006-10
period. The government has opened 19 new prevention
The government is making great efforts to improve and testing centres, and in 2006 about 55 000 people
education in Cameroon. In 2005, about 29 per cent were tested, up from only 6 000 in 2003. The price of
of the national budget was earmarked for the sector, antiretroviral (ARV) drugs was brought down from
and the government recruited about 1 700 supply 7 000 to 3 000 CFA francs per dose in 2005, and they
teachers to equip schools. Although the government’s are now given free to infected children. Infected pregnant
emphasis appears to be on primary education, with women and newborn babies receive nevirapine at no
the aim of reaching the MDG of universal access to charge. The cost of the half-yearly follow-up tests of 175
primary education by 2015, it is also paying attention ARV patients has also been cut, from 18 000 to
to higher education. In 2005, it gave approval for the 16 000 CFA francs.
opening of two new medical schools and an engineering
faculty, which will go some way to alleviating the
problems faced in the tertiary sector.

.
Chad
N’Djamena
key figures
Chad
T HE CHADIAN ECONOMY ENTERED the oil age at of serving as a rear base for the rebellion, is exposing
the turn of the millennium. In 2004, the exploitation the two countries to a full-blown conflict and could
of “black gold” was the country’s main engine of lead to considerable movements of refugees and
growth, enabling it to reach a record growth rate of displaced persons. This acute military tension is also
31.3 per cent. However, the “oil boom” was followed engendering an alarming
Disappointing performance in
by a disappointing performance of the sector. Chad’s food situation in the refugee
the oil industry affected other
GDP nevertheless rose by 8.6 per cent in 2005, camps and increasing
sectors where compensating
reflecting the recovery of the country’s non-oil-sector, insecurity amongst the host
for the drop in oil revenues
where growth primarily occurred, at a rate of 11.6 per population. In 2006,
is proving difficult.
cent. However, 2006 was marked by rising violence national economic activity,
in the easternmost part of Chad, at the Sudanese although down from the performances recorded in
border, as a result of clashes between government 2005, remained buoyant despite the decline in oil-
forces and rebel troops opposed to the current regime. sector activity. Real overall GDP growth is estimated
This military escalation, with Chad accusing Sudan at about 1.3 per cent for 2006.
179
Source: IMF and National Institute of Statistics and Economic and Demographic Studies (Inseed) data; estimates (e) and projections (p)
based on authors’ calculations.
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Chad
Recent Economic Developments the government’s decision to exempt CotonTchad from

paying value-added tax (VAT) on the materials,
In the harvest season 2005/06, the primary sector equipment and services necessary for production, and
(oil and agriculture) contributed 3.8 percentage points to the government’s will to take on part of the costs of
to growth. Growth of the primary sector is estimated inputs in the future.
at 0.2 per cent for 2006. This weak performance of
primary-sector activities was mainly due to the decline The estimated slow-down in the primary sector is
in oil extraction, leading to a fall of 3.6 per cent of its explained by the decline in oil output. Activity in the oil-
value added. Sustained growth in the other sectors was production sub-sector, which made a strong contribution
barely able to offset the decline in oil production. The to growth over the past few years, now shows disappointing
return to normal weather and pest conditions should performance. The growth rate of the oil-production sub-
set agricultural growth at about 7 per cent, as against sector took a sharp drop, from 293 per cent in 2004 to
26.6 per cent in 2005. The contribution of the 2.1 per cent in 2005, due to the decline in oil extraction.
agricultural sector to GDP growth is estimated to be The initial output forecast of 175 000 barrels per day on
no more than 0.1 percentage point for 2006. As for average for 2005 was not met for technical reasons,
food-crop production, its normal growth rate (6.7 per including the water content in the crude oil extracted from
cent per year on average) will not be able to make up the three fields (Miandoum, Komé and Bolobo) and the
for the decline in oil activity, which is expected to settle quality of the crude oil (heavy, viscous and acidic). By
at 1.6 per cent, -0.6 per cent and -6.1 per cent in 2007, the end of 2005, average production was only
2008 and 2009, respectively. 172 400 barrels per day on average, despite the start of
production in the Nya field (June 2005).
180 The final results announced by the agricultural
statistics division indicate 53 per cent progress in cereal Since 1999, management of the proceeds generated
production thanks to good rainfall distribution over the by oil production had been regulated by the oil-
year and around the country, and to the increase in revenue management law drawn up with the World
cultivated areas. Contrary to forecasts, which had Bank. Under the terms of this law, direct revenues,
predicted stagnation, seed-cotton production increased i.e. royalties and dividends (12.5 per cent of the selling
by 7.5 per cent in 2006. It is estimated at 215 000 tonnes price of crude oil on the international market), were
by the national rural-development bureau. This progress paid into a Chadian state account. Ten per cent of this
is apparently due to the fact that farmers were highly revenue was then placed in an escrow account opened
motivated to pursue cotton production subsequent to with an international institution for the benefit of
their joining the board of CotonTchad, but also to future generations. The remaining 90 per cent were
Source: Authors’ estimates based on Inseed data.

http://dx.doi.org/10.1787/512540586074

Chad
deposited in special accounts of the Chadian treasury Incentive measures taken by the government in the
and distributed as follows: 80 per cent to finance cotton sector made it possible to relaunch ginning.
specific development projects in priority sectors such Moreover, the manufacturing industries (sugar, beverages
as education, health, infrastructure (roads), rural and cigarettes) benefited from tariff-protection measures
development, the environment and access to drinking set up to curb fraudulent imports. Investments in the
water; 15 per cent to general administrative and industrial sector also increased, in response to demand.
investment expenditures in the state budget; and 5 per The water and electricity utility Société tchadienne d’eau
cent to the decentralised authorities of the oil- et d’électricité (STEE) contributed to the growth of this
producing region. sector thanks to the rehabilitation of old generators
and a number of different investments. The contribution
On 29 December 2005, however, the National of the construction sector is also to be noted, in
Assembly of Chad unilaterally revised this law. The particular through road construction and works in the
government, facing an armed rebellion attempting to N’Djamena power station.
overturn it, decided to turn part of its oil revenues over
to security expenditure. The World Bank responded The steady, sustained growth of the secondary sector
immediately by freezing the funds it had granted to (17 per cent in 2005 and 14.5 per cent in 2006) is
Chad and part of the country’s assets reserved for future estimated to be largely due to the recovery of research-
generations in the London-based escrow bank account. and-development activities undertaken to overcome
The World Bank also suspended the disbursement of geological constraints. Its contribution to growth in 2006
$124 million in loans to Chad. Negotiations were held is estimated at 0.4 percentage point. The continuance of
in April 2006, and on 15 July, a budget law was adopted major construction works (roads and buildings) is
specifying that 70 per cent of oil revenues would be estimated to have supported construction-sector activity, 181
used for priority poverty-reduction programmes and, which realised 11.3 per cent growth. The handicraft,
thanks to the creation of a stabilisation fund, would bakery and milling sector, dominated mainly by cereal
contribute to long-term growth and to the development flour production, is estimated to have benefited largely
of new opportunities. The priority programmes from the excellent 2005/06 agricultural season: its value
identified by this agreement are directed towards health, added is expected to progress by 17.5 per cent in real terms.
education, agriculture, infrastructures, the environment, The energy (water and electricity) sector has maintained
rural development, de-mining and good governance in its buoyancy, thanks in particular to the upcoming
public affairs. The agreement also stipulates that security commissioning of the new Farcha power station. Although
spending will be funded from the state treasury’s general the contribution of the secondary sector to total growth
revenues. The Chadian authorities also agreed to was not very great (around 10 per cent of GDP at constant
strengthen their support of the Collège de contrôle et de prices), it is estimated to have contributed 1.5 percentage
surveillance des ressources pétrolières, an independent points to growth in 2006. Although this sector has
body in charge of monitoring and supervising the use recorded a favourable trend in its activities, the good
of oil revenues. The protocol includes provisions performance of its sub-sectors has not compensated for
whereby the Collège’s own resources will be increased the drop in oil investments. In 2007, the activity of the
in order to help it accomplish its task of supervision. secondary sector is expected to fall considerably, by
In addition, it stipulates that 5 per cent of oil proceeds 8.8 per cent. However, it is expected make a recovery in
will be allocated exclusively to the Doba region, where 2008 and 2009 reaching 3.7 per cent and 3.3 per cent,
the oil is extracted and then transported to the sea via respectively, thanks to the lint-cotton industry, water and
a pipeline that goes through Cameroon. electricity, and handicraft sub-sectors.
The secondary sector showed sustained activity in Despite competition from the informal sector, the
2005, contributing 1 percentage point to growth. tertiary sector marked clear growth in 2005 thanks to

Chad
the development of commercial activities, mobile constraints. This new pace was reinforced by the increase
telephony, transport and tourism. The contribution in public-investment expenditures. Growth of final
of this sector to growth amounted to 3.5 percentage consumption in real terms is estimated to have fallen
points. The tertiary sector received support from the to 1.6 per cent in 2006. There is hope of a slight
state’s continued policy to settle its debts towards local recovery in 2007, but it is not expected to become
economic operators. The steady progression of tertiary- consolidated. Most (about 70 per cent) of the good cereal
sector activity since 2000 continued in 2006. Growth production of the 2005/06 agricultural season is
of the value added of the sector is estimated at 7.4 per estimated to have been consumed in 2006, with a
cent, driven by: the public-administration sub-sector considerable increase in non-market consumption
(12 per cent), which increased its expenditures on (reflecting the importance of home-consumed
poverty reduction; the transport and communications production in rural areas). It is estimated to have risen
sub-sector (6.4 per cent), thanks to the development by 15.6 per cent and contributed 4.1 percentage points
of roads (which should increase domestic trade) and to growth. Market consumption also contributed to this
the expansion of mobile telephony; and the trade sub- increase, benefiting from an improvement in the
sector (5.4 per cent), which benefited from the effects purchasing power of households brought about by
induced by recovery in the other sub-sectors. This perspectives of wage increases in the civil service. As
sector’s contribution to growth in 2006 is expected to for the external sector, for the first time since the start
stand at 2.7 percentage points including a contribution of oil production in the Doba Basin, exports are
of 1.2 points made by the public-administration sub- estimated to have fallen by 1 per cent in real terms.
sector. The strong activity of the tertiary sector recorded Imports, on the other hand, are estimated to have
since 2001 is expected to slow down and grow by increased significantly, by 7 per cent in 2006, benefiting
182 2.9 per cent, 2.2 per cent and 2 per cent in 2007, 2008 from the recovery in oil investments. The estimated
and 2009, respectively. The tertiary sector is projected employment level is down by 10.4 per cent in real
to contribute 1.1 point and 0.8 point to growth in terms, but is projected to climb slightly in 2008 and
2007 and 2008/09, respectively. 2009 to 0.6 per cent and 0.4 per cent, respectively. This
is seen as the result of the weakness of gross fixed capital
On the demand side, new investments were realised formation (GFCF) in the oil sector and of the slowdown
in the oil sector in order to cope with geological in exports related to the fall in oil output.

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 6.4 8.7 4.8 4.8 4.8
Private 7.9 17.9 8.5 10.0 8.0
Consumption 101.9 45.5 1.6 4.3 3.7

Public 41.1 20.8 3.5 2.7 3.3
Private 60.8 24.7 0.6 5.2 3.9

Exports 20.4 54.4 -1.0 -0.2 -3.0
Imports -36.5 -26.6 7.0 6.6 5.4
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Chad
Macroeconomic Policies In 2006-09, it is expected that public finances, in

terms of receipts, will evolve in line with the revenues
Fiscal Policy received from oil activities, and in terms of expenditures,
according to the implementation of the national poverty-
Given the problems that the country had met in reduction strategy, the Stratégie nationale de réduction
executing its budget, Chad’s finance law was revised in de la pauvreté. The overall volume of receipts collected
2005. Budget execution finally ended with a deficit (on by the general administration is predicted to evolve
a commitment basis, including grants) of 31.3 billion very positively. As a percentage of GDP, expenditures
CFA francs. Non-grant receipts went up by 27.9 per are expected to be twice the percentage noted in 2005,
cent due to the increase in oil receipts (+65.3 per cent) settling at an average of 18.6 per cent of GDP. Non-
reinforced by the high level of prices. Non-oil receipts oil tax revenues (i.e. revenues excluding the taxes on
went up by 7.9 per cent thanks to the increase in the oil-consortium companies) are expected to progress
income tax (+22.2 per cent) and in customs receipts slightly to reach 10 per cent of non-oil GDP in 2007,
(+22.4 per cent). Current expenditure increased by up from 9.6 per cent in 2006. As for non-tax revenues,
52.4 per cent in 2005, owing in part to hiring in the excluding oil royalties, they are projected to stagnate
primary sector and to the rise in transfer and subsidy as a percentage of non-oil GDP despite the revenues
expenditures. Capital expenditures declined (-20 per expected from the announced privatisations of Novotel
cent) partly as a result of the 33 per cent drop in (2006), CotonTchad (2007) and the telecommuni-
investments in external resources. cations company Sotel Tchad (2007/08).
The Chadian authorities adopted a corrected Monetary Policy

finance law for 2006 which takes into account the 183
rise in prices of crude oil and the agreement signed with Monetary policy is managed at the regional level
the World Bank on the use of oil proceeds. The by the Bank of Central African States (Banque des États
corrected budget sets state expenditures at de l’Afrique centrale – BEAC) with the priorities of
641.29 billion CFA francs and its revenues at keeping inflation under control and pegging the CFA
607.5 billion CFA francs, as against the 539 and franc to the euro. Monetary policy in the zone is
510.33 billion CFA francs, respectively, of the initial therefore strict, like that of the European Central Bank
text. This change takes account of the outcome of the (ECB). The only difference is that the BEAC’s monetary
negotiations with the World Bank, which released the policy takes account of the economic situation of its
frozen funds, and of the addition of new oil-related member countries with respect to inflationary pressures
revenues. The latter are due to the constant rises in the and banking liquidity levels.
price of the barrel on the international market and on
the proceeds from the company income taxes paid by In the area of inflation, tensions arose in the prices
the oil consortium, estimated at 69 billion CFA francs, of most food products: the average inflation rate in
as well as from another tax amounting to 9.434 billion the first five months of 2006 was 14.1 per cent higher
CFA francs, none of which had been taken into account compared with the first five months of 2005. This
in the initial finance law. The new budget text also situation was mainly the result of the sharp increase in
includes non-recurrent security expenditures. In the the prices of meat and fish products brought about by
2007 finance law, the estimated additional taxes from the Avian Flu outbreak in Nigeria, which resulted in
oil companies are expected to create budget surpluses a massive output of fish from Lake Chad into bordering
for the first time ever. This unprecedented situation countries. There was also a marked fear on the part of
has led the authorities to decide to no longer tax the local population of the possibility of a local outbreak
building materials as of 2007; the costs of building of the virus. This situation resulted in a high demand
materials had previously been amongst the highest in for meat, which was in limited supply: the
the sub-region. slaughterhouse company Société moderne des abattoirs

Chad

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 6.0 6.6 4.8 4.1 4.0 4.1 4.3
Oil revenue 0.0 0.0 2.5 4.2 4.3 3.8 3.5
Tax expenditure and net lendinga 14.8 22.0 14.4 13.0 13.3 14.0 14.7
Interest 0.8 0.6 0.4 0.3 0.5 0.4 0.5
Primary balance -2.9 -6.2 -2.7 -0.4 -1.1 -2.1 -3.1

Overall balance -3.7 -6.8 -3.2 -0.8 -1.7 -2.5 -3.6
http://dx.doi.org/10.1787/043648417017
in Farcha, which has a monopoly on meat production 06, the World Bank granted an IRSC (Institutional
for N’Djamena, recorded a 4 per cent drop in its Reform Support Credit) of $25 million to finance
production. Inflationary pressures increased in the institutional reforms.
second half of 2006 partly because of the break-up of
markets in the east and south of the country resulting There was no significant change in Chad’s exports
from the growing insecurity there. This could make trade or imports: between 2005 and 2006, exports moved
184 increasingly difficult and lead to a continuing rise in from 52.8 to 52.6 per cent and imports from -13.8 to
demand from refugee populations. Nonetheless, the -13.9 per cent.
conservative monetary policy of the BEAC should
prevent any pronounced increase in inflation, which Chad is applying a cautious external-debt policy and
is estimated at an average of 8.8 per cent in 2006 and contracting most of its loans under very privileged
projected at 4 per cent in 2007; this is still above the conditions. The country also became eligible in mid-
convergence criterion of the Economic and Monetary 2001 for debt relief under the Enhanced Heavily
Community of Central Africa (Communauté économique Indebted Poor Countries (HIPC) Initiative. However,
et monétaire de l’Afrique centrale – CEMAC), which sets in 2006 Chad did not receive any HIPC funding.
it at 3 per cent. External-debt servicing (after the overall borrowing
operation) was estimated at the end of 2004 at
External Position 780 billion CFA francs, up from 732 billion CFA
francs in 2000. Debt stock declined from 75 per cent
Chad is a member of the CEMAC and of the of GDP in 2000 to 34 per cent in 2004. In 2004,
Economic Community of Central African States Chad’s long-term external debt amounted to nearly
(ECCAS). In February 2005, in the framework of the 93 per cent of total debt, rising by 8.2 per cent to reach
Poverty Reduction and Growth Facility (PRGF), the $1.58 billion, as against $1.46 billion previously.
International Monetary Fund (IMF) and Chad Recourse to IMF credit declined by 9.4 per cent. Short-
negotiated a new three-year programme amounting to term debt stabilised at $23 million. Chad was expected
$38 million. This programme with the IMF is currently to reach the HIPC Initiative completion point by the
suspended because of the poor macroeconomic results end of 2005 and to be able to benefit from the
obtained by the authorities. The European Union (EU) Multilateral Debt Relief Initiative. However, the
signed a co-operation programme with Chad for November 2005 to July 2006 break in relations between
EUR 273 million in the framework of the 9th European Chad and the World Bank made it impossible for Chad
Development Fund (EDF). During the period 2004- to reach the completion point. The adoption of the new

Chad

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -1.1 -6.5 29.1 39.0 38.7 34.0 29.9

Imports of goods (f.o.b.) -16.0 -28.6 -19.8 -13.8 -13.9 -14.5 -15.2
Services -9.9 -27.8 -27.3 -29.5 -26.6 -26.8 -23.5
Factor income -1.1 -16.5 -13.3 -9.8 -8.9 -18.4 -13.3
Current account balance -9.2 -47.1 -6.5 4.9 7.9 -7.5 -3.5
Source: IMF and BEAC data; estimates (e) and projections (p) based on authors’ calculations.
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185
Source: IMF.
http://dx.doi.org/10.1787/124118888446
oil-revenue management law in July 2006 should make whose role will be to set the “rules of the game” in the
it possible not only to release suspended World Bank economic, political and social arenas.
credits but to clear up Chad’s situation with regard to
the HIPC Initiative completion point. In the areas of decentralisation and good governance,
it is true to say that decentralised institutions remain
weak and that the establishment of solid local governance
Structural Issues remains a non-negligible challenge. Today, municipalities
are the only local authorities with a distinct legitimate
Recent Developments organisation. Decentralisation is limited by the quality
of communications between the central government and
One of the challenges facing the country is the the regions. Despite the development and validation
establishment and stabilisation of national institutions in December 2005 of a blueprint for decentralisation

Chad
which was intended to render the Chadian authorities’ du Soudan au Tchad (Bast), the Banque commerciale du
commitment to decentralisation operational, the Chari (BCC), the Banque internationale pour l’Afrique
associated legal framework remains to be completed and au Tchad (Biat), the Commercial Bank Tchad (CBT),
the establishment of regional authorities is hanging on the Financial Bank Tchad (FBT), the Société générale
the organisation of elections. The country organised a tchadienne de Banque (SGBT) and the Banque sahélo-
general convention of justice in 2003 and of the army saharienne pour l’investissement et le commerce (BSIC).
in 2005, to consolidate the foundations of the rule of The Chadian economy still possesses a poor level of bank
law. Subsequently, commercial courts were set up in four utilisation and suffers from low bank density.
main towns in the country (in addition to N’Djamena) Microfinance is a relatively important sector,
to facilitate the settlement of conflicts related to representing nearly 4 billion CFA francs of loans granted.
commercial transactions. The country has stated its Informal mutual-help entities have constituted fertile
determination to fight corruption. A Ministry of General ground for the blossoming of microfinance, through
State Control and Moralisation was created in June not-for-profit organisations, mutual societies and
2004. Nonetheless, the measures against corruption are associations. This sector is expanding. The Microfinance
not always well-targeted and run into highly complex Institutions (MFI) movement actually started in the
procedural rules and mystifying results. In 2005, Chad 1990s as an offshoot of the Vita project financed by
was ranked in first place as the most corrupt country the United States Agency for International Development
in the world. This situation argues in favour of the use and the savings-and-credit union – Union des clubs
of information technology by the financial authorities d’épargne et de crédit (UCEC) – in Pala, funded by the
(customs, taxes, etc.). diocesan bureau for development, the Bureau d’Études
et de Liaison, d’Action Caritative et de Développement
186 In the area of agricultural-sector reforms, analyses (BELACD). In 2001, according to the microcredit
cover mostly the cotton sub-sector, for even though the division of the Ministry of Finance and Information
latter benefits from considerable state support and Technology, there existed 128 microfinance
donor backing, it is facing a drop in production, due organisations, 111 of which were grouped into 5
particularly to purchase prices that provide little networks; these organisations had collected 635 million
incentive and to marketing problems. Smallholders’ CFA francs in savings and granted 1.3 billion CFA
production is often paid as much as six months late. francs in loans to users. Moreover, 32 000 persons had
All of this discourages production. The government and used these MFI financial services. In the framework of
its partners have drawn up a list of measures to be the implementation of the CEMAC/COBAC (Central
taken (roadmap) in order to prepare effectively the African Banking Commission) procedure, 214 MFIs
privatisation of the CotonTchad company in 2007. In were identified in 2004, 187 of which were networked
the framework of a crop-diversification policy, many and 5 in project status; these represented 4 419 billion
studies were conducted for the launching of new CFA francs of collected deposits and 3 669 billion CFA
agricultural sub-sectors, including poultry, peri-urban francs of loans granted to 98 378 users, tripling the 2001
livestock, Spirulina and pasture-fattened bovine animals. figures. On 31 December 2005, 97 MFIs had been
So far, these studies have not resulted in the launching accredited by the COBAC.
of new projects. Chad is the second world producer of
gum arabic, a sub-sector that is booming. Finally, The government drew up a national transport
sesame and groundnut production offer potential for programme (PNT) for 2000-09 aimed primarily at
substantial monetary income for rural populations, contributing to economic growth and reducing poverty
but these sub-sectors are badly known, badly exploited by means of: better access within, and from outside of,
and badly organised. the country; reduction of transport costs, both within
the country and internationally; minimum access to all
The Chadian banking system comprises seven banks regions of the country, even during the rainy season;
(no change with respect to 2004): the Banque agricole an adequate network of roads suitable for motor vehicles

Chad
all year round linking up the main towns in the country; targeted secondary towns, which represents a 63 per
pursuit of the liberalisation process of the sector and cent completion rate. The Internet penetration rate is
of the modernisation of its administration; development only 0.3 per thousand inhabitants. The Ministry of
of rural infrastructures; and so on. One of the objectives Postal Services and New Communications Technologies
of the national transport programme is the improvement is currently developing a national strategy for
of the system in rural areas. The results obtained so far information technology and telecommunications.
in this domain have been limited. To correct this, the
government has set up a division for roads and earth In the energy sector, the policy and strategy letter
roads (DRPR), which is to be responsible for for the electricity sub-sector (2002-06) states as its
implementing the “rural transport” component of the main purpose to meet at a lesser cost the energy needs
national transport programme support project of the population as a whole and to extend access to
(Papronat) funded by the World Bank. The government energy for the benefit of agricultural and industrial
has drawn up a five-year investment plan (2006-10) production. Its also aims to promote alternative energy
for roads and earth roads for a yearly amount of 4 billion sources (solar and wind energy) so as to limit the impact
CFA francs. This plan should make it possible to repair of firewood cutting on the regeneration of forest
3 000 to 4 000 kilometres of rural roads with national resources. Ligneous fuel (stove wood and wood charcoal)
funding (oil revenues). In addition, some other major still represents 90 per cent of energy consumption,
projects include a “roads and earth roads” component, leaving only 10 per cent for conventional energy (oil
such as: the project to build 100 kilometres of earth products and electricity). From 2001 to 2005, annual
roads in the target zone selected for the 6th EDF (EU energy consumption went up from 240 to 292 kg of
funding); the project to repair earth roads in the former oil equivalent per capita.
Biltine prefecture (Swiss co-operation funding); and the 187
repair and maintenance project for earth roads in the Access to Drinking Water and Sanitation
former Mayo-Kebbi prefecture (KFW [Bank of
Reconstruction Credit] – German development co- Chad has considerable water resources. This should
operation funding). not, however, obscure the major constraints involved
in the mobilisation of water resources – especially, the
A postal-services and telecommunications strategy unequal distribution (both spatially and temporally) of
is currently being finalised. Its goal is to improve the rainfall and surface water, as well as the lack of knowledge
coverage of urban and rural areas, particularly through regarding how the main aquifers work. Improving the
the development of mobile telephony. Sotel Tchad (a rate of access to drinking water in Chad, amongst the
subsidiary of the Anglo-Dutch company MSI lowest in Africa, is one of the country’s most important
Mobicom), which is the leading mobile-telephony socio-economic challenges.
operator, runs a telephone network that has
infrastructure and intercity transmission connections In 2003, the government adopted an integrated
linking up 16 of the country’s towns. In June 2006, the plan for Chad’s water and sanitation development and
company announced a 24 billion CFA franc expansion management (Schéma directeur de l’eau et de
plan. The mobile-telephony market has experienced l’assainissement – SDEA), which is still the main reference
rapid development. In 2004, there were about 1 200 000 in the sector. The SDEA constitutes a strategic, multi-
subscribers. The expansion of mobile telephony has sectoral master plan providing guidelines for the
brought about considerable improvement in overall sustainable development and management of water
access to the telephone (15 per cent in 2004). Since resources in Chad, with a view to meeting the
October 2005, the quasi monopoly held by Celtel has population’s basic needs and promoting the economic
been challenged by the Swedish group Millicom and social development of the country. It is through
International. The rural-telephony project has succeeded the SDEA that the government’s environmental policy
in installing VSAT antennas in 15 out of the 25 initially has been defined.

Chad
The three institutions principally involved in water In the area of water management, it is worth noting
and its management are: the National High Committee that the management system is of the community type,
for the Environment (HCNE), the Ministry of the based on the experience of the Directorate of Hydraulic
Environment, Quality of Life and National Parks Affairs. The water-management committees comprise
(formerly the Ministry of the Environment and Water – 7 to 10 members covering the different management
MEE), and the Ministry of Fishing and Rural functions. They are backed by a technical team in
Waterworks. The HCNE’s mission is to ensure that there charge of equipment servicing and maintenance. The
is effective application of the recommendations of main finding regarding the DWS stations run by a
Agenda 21 (drawn up by the United Nations management committee is that the management systems
Conference on Environment and Development held set up recently often do not work properly. Moreover,
in Rio de Janeiro in June 1992). The National Water water is often under-invoiced as the price of water is
Management Committee (CNGE) is attached to the set with no reference to real operating costs. Water is
HCNE. The two ministries are in charge of designing too commonly supplied for free and in unlimited
and implementing policies for environmental quantities to notables and public services. There is little
protection, the fight against desertification, and natural- or no maintenance, and servicing is limited to system
resources management; they are also responsible for the drainage and lubrication.
implementation of policies for urban, agricultural and
rural waterworks and sanitation, as well as for
The main actor in the institutional framework for
meteorology and hydrology. The Ministry of the
urban sanitation is the Ministry of Public Health,
Environment, Quality of Life and National Parks is
which is responsible particularly for promoting
also in charge of the HCNE Secretariat. Finally, the
environmental hygiene, for the purification and quality
188 ministry in charge of decentralisation under the
of water for consumption, and for drawing up
authority of the prime minister is responsible for the
legislation and regulations in the area of hygiene and
implementation of the decentralisation policy in this
sanitation. The Ministry of Regional Development,
area, so enabling participation and decision-making
Urban Planning and Housing is responsible for
at the lowest possible level.
regulations in the area of town and country planning,
urbanism and construction, and for defining viability
Since 2001, the main institutional actors in the
levels for the different types of neighbourhoods. The
domain of urban water have been the MEE – through
Ministry of the Environment, Quality of Life and
the Directorate of Hydraulic Affairs (DH), which deals
with the non-concessionary sector – and the Ministry National Parks is responsible for project design and
of Mines, Energy and Petroleum (MMEP) (now the construction supervision for all activities related to
Ministry of Mines and Energy), responsible for the urban hydraulics and sanitation. The Ministry of the
utility company STEE – which deals exclusively with Interior and Public Security, through its sanitation
the concessionary sector. The main producers have section, is in charge of: disinfestation, disinfection
been water-point management committees (Comités de and rodent control in homes; disaster response
gestion des points d’eau) in conurbations equipped with (epidemics, floods, etc.); and the hygienic disposal of
thermal or solar drinking-water supply (DWS) stations, urban solid and liquid wastes and faeces.
for the non-concessionary sector, and the STEE for the
concessionary sector. Municipalities also play a role in the sanitation
chain – as well as the populations, which have organised
Artisans and associations comprised of hydraulic sanitation committees in a number of towns. These
engineers and street-fountain managers often act as committees are involved in the maintenance and
intermediaries between network owners and retail construction of channelling systems to drain rainwater,
water-carriers or non-subscribed consumers. They are, in waste collection and in repairing streets after the
in a sense, wholesalers. rainy season.

Chad
The basic prices of water and connections vary cent of households are using rudimentary latrines,
according to the management. Management 0.6 per cent are using improved traditional latrines
committees, for lack of customer market research and and 88.5 per cent are relieving themselves in nature.
of any real calculation of the local cost price, sometimes Moreover, there is no waste collection in the villages
apply STEE rates when new installations are and domestic animals are left wandering about. In
commissioned (connection, renewal or reinforcement). Chad, the major (current and future) village-hydraulics
The price of water is usually broken down into three projects do not systematically include a sector for
categories. The first, so-called “social” category “village sanitation” – which is inexpensive, but requires
(15 m3/month) is set at 105 CFA francs. The second specific programmes for local mobilisation and
(15 m3 to 100 m3/month) varies depending on the awareness raising.
centre: it is 230 CFA francs/m3 for the sites manages
by the STEE and can go up to as much as There is not a single town with a functional waste-
490 CFA francs/m3 (in Pala). The third category is set water disposal system. The collection networks are
at 110 CFA francs/m3. Generally speaking, the prices decrepit. Less than 2 per cent of town-dwellers have
do not reflect the real costs to the owners. STEE rates sanitation installations with running water. Moreover,
have been frozen since 1984. The most underprivileged only four towns – N’Djamena, Moundou, Sarh and
populations sometimes buy water from a reseller for Abéché – adopted urban reference plans (Pur) in
up to 15-25 times more than the price paid by February 1997; these plans identify built-up areas and
subscribers with private connections. outline the main road-networks and rainwater-drainage
options.
The drinking-water supply rate for the Chadian
population as a whole was only 42 per cent in 2004 Hospitals and health centres have neither 189
according to the United Nations Environment infrastructures in good working condition (incinerators,
Programme (UNEP); this was almost twice the rate of waste-processing plants, etc.) nor well-established
2001, when it was 23 per cent (16.5 per cent in rural “procedures” to process and dispose of biomedical
areas, 25 per cent in centres in the non-concessionary waste. This waste often ends up in the streets, where
sector and 40 per cent in towns in the concessionary- it can be picked up by children or anyone wishing to
sector managed by the STEE). “recover” it. Waste-water from health facilities is rarely
processed: it is merely disposed of in the environment,
Regarding sanitation, there is practically no basic often in natural streams; in some cases, it is re-used for
infrastructure in either rural or urban areas. Everything a variety of purposes (to water small market gardens,
remains to be done in this domain. In 2002, 30 per etc.). In addition, most industries discharge their liquid
cent of the urban population had access to sanitation, wastes into large waterways, such as the Chari and the
but in the rural areas the prevailing rate was practically Logone Rivers, with no prior treatment.
equal to zero. In 2004, sanitation needs in terms of
percentage of population were estimated at 35 per cent Only the four largest towns –N’Djamena,
in urban areas and 56 per cent in rural areas. According Moundou, Sarh and Abéché – have a more-or-less
to the SDEA drawn up in 2002, village needs amount organised secondary network of open gutters to evacuate
to more than 12 500 new water points by 2015 to be rainwater, but they are rarely in good condition.
able to supply 70 per cent of the rural population: this
will require considerable investments. In the past 25 years, the main donors for urban
and semi-urban hydraulics have been Chinese
For the village areas, outside of a few projects, there Taipei (15 346 billion CFA francs), Germany
are very few villages equipped with improved traditional (10 756.6 billion CFA francs), the European Investment
latrines or ventilated pit latrines, or even waste or waste- Bank (1 486.8 billion CFA francs), the European
water collection systems. This means that 10.6 per Development Fund (1 395.3 billion CFA francs),

Chad
France (985.8 million CFA francs), Italy by President Déby under international pressure, with
(835.2 million CFA francs), the Inter-American the aim of restoring a “healthy political climate” in
Development Bank (105 million CFA francs), the Chad after the presidential election of 3 May, resulted
World Bank (54 million CFA francs) and the African in the adoption of several resolutions relating to the
Development Bank, which has launched a project in general elections. Fifty-four political parties, most of
this sector. them with very low representativeness, took part in
the dialogue process, but it was boycotted by the two
main opposition groupings: the main member parties
Political Context and Human of the Coordination of Political Parties for the Defence
Resources Development of the Constitution (CPDC) – the most important
Chadian opposition coalition – and the Federation
The real challenge that is facing the government is Action for the Republic (FAR) pulled out before it
to contain the resurgence of insecurity and conflicts in began. The CPDC, which comprises some twenty
Chad. The public life of the country is marked by the political groupings including four of the five main
continuing existence of focal points of tension, making opposition parties in the National Assembly, and the
it difficult to build a social fabric and maintain a stable FAR, the second parliamentary opposition force,
political consensus. After having been weakened over denounced the non participation of the armed
several months by defections within his regime and by opposition, the opposition in exile and civil-society
rebellion – backed, according to N’Djamena, by opposition.
neighbouring Sudan – Idriss Déby, who had been in
power since 1990, was re-elected on 3 May 2006 for Chad drew up its National Poverty Reduction
190 five years on the first round of an election that was Strategy in 2003. This strategy sets out the framework
boycotted by the opposition. The rebel groups Union for co-operation with all the donors represented in
of Forces for Democracy and Development (UFDD), the country. The authorities plan to fund the
Rally of Democratic Forces (RAFD) and United Front programme for the fight against poverty with oil-
for Democratic Change (FUC) confronted the national export revenues. According to the Human
Chadian army in violent combats. This armed Development Report of the UNDP (United Nations
confrontation has affected the areas of Chad bordering Development Programme), Chad was ranked 171 out
Sudan and the Central African Republic, as well as of 177 countries, with a Human Development Index
towns in the centre of the country, without sparing the (HDI) of 0.341 in 2006, as against 0.359 in 2000. This
capital. This situation has resulted in nearly 50 000 means that over 65 per cent of the Chadian population
displaced persons who are fleeing to escape from combat lives with less than one dollar a day. If this trend
zones or because of fears of reprisal from armed militia, continues, the number of persons living in absolute
usually called djandjawid. In this deteriorating context, poverty in Chad, which was 6.3 million in 2005, could
several missions have been sent to the country, including grow to 8.2 million in 2015. The latest consumption-
emissaries from the African Union’s Peace and Security budget survey (ECOSIT II) of 2003, confirmed in
Council; also, the United States Ambassador to Chad 2006, estimated the percentage of poor populations
visited the refugee camps. Combats have led to a in Chad at 55 per cent. Poverty is mostly rural (more
deterioration of the security situation, to additional than 80 per cent of the rural population lives under
inflows of refugees at the southern border of the country the poverty line). The priority areas on which the
and to displaced persons in the eastern region. The donors have focused their efforts include education,
measure of insecurity, considered by the humanitarian health, rural development, transport, urban planning
organisations present to be often of great concern, has and housing. In its National Indicative Programme,
forced the latter to relocate their staff temporarily to the European Commission has channelled its efforts
the larger towns. The political dialogue between the (9th EDF, 2002-07) through the framework of the
government and the opposition which was organised National Poverty Reduction Strategy.

Chad
Under the terms of a Framework Partnership staff, 468 of which were graduates with state diplomas
Document (FPD) signed in June 2006, France will and technical health officers. Only 7 per cent of the
grant Chad EUR 130 million for its development up total staff were doctors, giving a ratio of 1 doctor per
to 2010. According to this document, 80 per cent of 26 054 inhabitants. This scarcity was exacerbated by
this commitment will be devoted to the three major the unequal distribution of qualified personnel amongst
priority sectors of basic education, water and sanitation, the provinces, the urban and rural areas, and amongst
and health and the fight against HIV/AIDS. French curative- and preventive-care institutions. About one-
aid will also be directed towards the sectors of governance third of the health personnel was in N’Djamena alone,
and the rule of law, on the one hand, and to the for only 8 per cent of the population. In 2003/04, the
influence of the French language in culture and research, expenditure execution rate in the sector did not exceed
and higher education, on the other. 36.4 per cent of budget provisions.
The situation of the HIV/AIDS epidemic is a In the area of education and training, the progress
subject of great concern. Starting with 2 cases in 1986, achieved in the primary-education sub-sector is
a total of nearly 20 000 cases of AIDS had been recorded encouraging. The gross enrolment rate went up from
by health groups by the end of 2004. A seroprevalence 72 per cent in 1999/2000 to 87.58 per cent in 2003/04,
survey conducted in 2005 showed that in Chad, 3.3 per which is much higher than the average for the 15
cent of persons aged 15 to 49 were HIV carriers. This francophone African countries (80.4 per cent); this
rate is lower than that estimated by UNAIDS (Joint represents an average rate of increase of 22 per cent over
United Nations Programme on HIV/AIDS) in 2004, the last five years. The net enrolment rate reached
which was 4.8 per cent. The prevalence rate was 7 per 63 per cent and the primary completion rate 60 per
cent in urban areas, as against 2.3 per cent in rural cent in 2002/03, whereas the girl/boy ratio in primary 191
areas. More women (4 per cent) than men (2.6 per cent) schools was 0.68. Gender equality holds a major position
were infected. In urban areas, seroprevalence reached in the country’s development programmes. There is a
8 per cent amongst women. A declaration of national pro-women action programme featuring a large variety
policy for the fight against HIV/AIDS covering of activities. In practice, however, the situation of
prevention aspects as well as overall care is included in women is far from satisfactory. The percentage of
the 2006-10 national strategy framework. To improve women members of parliament is only 6 per cent, with
the institutional framework of the fight against this about the same ratio in the government.
pandemic, the government, with the support of its
development partners, intends to implement a number
of measures, including: i) reinforcement of the
institutional basis of the co-ordinating body;
ii) decentralisation and multi-sectorisation of the fight;
iii) networking of non-governmental organisations
(NGOs) and private-sector actors; and iv) making it
an obligation to produce results for all actions taken
in the framework of the fight against HIV/AIDS, along
with periodical and systematic assessments of these
actions with a view to taking appropriate adjustment
decisions. A number of constraints, however, are likely
to complicate the implementation of these programmes.
Particularly problematic is the shortage of qualified
staff and the low execution rate of health expenditures.
In 2003, the total human resources of the Ministry of
Public Health were estimated at 4 265 members of

.
Congo Republic
Brazzaville
key figures
Congo Republic
D ESPITE AN IMPROVED ECONOMIC situation railway line from Brazzaville to Pointe- Noire show
foreshadowing a brighter future, Congo is still suffering that the political and social situation remains explosive.
overall from the 1990s civil wars, whose devastating Nonetheless, parliamentary elections are to be held in
effects on the populations and infrastructures continue 2007 to complete the country’s political normalisation.
to weigh heavily on economic and social recovery. The
social and political climate has nevertheless gradually Fuelled by the leap in
Social and economic recovery
tended towards normality, thanks to peace and national- world oil prices over the
is still inhibited by the effects
reconciliation efforts, and to the continuation of the past few years and by an
of the 1990 civil war, but higher
disarmament, demobilisation and reintegration (DDR) increase in oil production in
oil prices and growing production
process of the 9 000 ex-combatants. Presidential, 2005, Congo’s real GDP
are aiding a fragile economic
parliamentary, senatorial and local general elections recorded strong growth, up
recovery.
were held between January and June 2002, making it from an average of 4 per
possible to set up the new constitution’s democratic cent in 2000-04 to nearly 7.7 per cent in 2005 and
institutions. The attack on a United Nations 6.8 per cent in 2006. The country’s overall economic
Development Programme (UNDP) convoy in the Pool activity has nonetheless remained vulnerable to external
region in April 2005 and rebel attacks on the main shocks because of its excessive dependence on oil.
195
■ Congo - GDP Per Capita (PPP in US $) ■ Central Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Congo - Real GDP Growth (%)
9 3500
8
3000
7
2500
6
5 2000
4
1500
3
1000
2
500
1
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/603045674464

Congo Republic
As one of the oldest oil-producing countries in prices to increasing the share allocated to the priority
Africa (also endowed with substantial natural and I-PRSP sectors, in order to take this share from 20.6 per
mineral resources), Congo is capable of mobilising cent of total primary expenditures in 2004 to 30 per
additional resources from donors and private investors cent in 2007.
and of putting its economy on a sustainable growth
track, provided that it extends its reforms. The high
prices of oil and the upturn in non-oil production in Recent Economic Developments
2006 contributed to an increase in the country’s tax
revenues. Furthermore, the cancellation of bilateral The Congolese economy suffers from a very high
debts decided by some of the Club of Paris creditors dependence on the oil sector – from which it still draws
and the debt relief granted under the Enhanced Heavily most of its export and tax revenues – and from very low
Indebted Poor Countries (HIPC) Initiative will allow diversification. Congolese oil comes mainly from off-
the country to settle part of its external arrears and shore fields, whose operating costs are high compared
have at its disposal additional resources for development. with average costs world-wide, so that the gap between
the price obtained and the world price can only decrease
In order to address the challenges specific to the post- when the latter declines. The economy recorded a solid
conflict situation, and to broaden the foundations for 7.7 per cent growth rate in 2005 and progressed by
economic growth and step it up, in September 2004 6.8 per cent in 2006. The decline recorded in 2006 can
the government adopted an Interim Poverty Reduction be essentially attributed to the oil sector, which grew
Strategy Paper (I-PRSP) based on five pillars: by only 9.6 per cent, as against 12.8 per cent in 2005;
i) consolidation of peace and promotion of good this was mainly due to a 9.3 per cent reduction in oil
196 governance, ii) macroeconomic stabilisation and revival production at the end of June 2006 (5 455 000 tonnes,
of key sectors, iii) access to basic social services and social as against 6 017 342 tonnes at the of end June 2005),
welfare, iv) infrastructure development and despite the commissioning of the Mboundi field, which
v) reinforcement of the fight against HIV/AIDS. The had contributed nearly 12.5 per cent to the growth in
medium-term reform programme (2004-07) total output in 2005. If this downward trend were to
underpinning I-PRSP implementation benefits from be confirmed, it would have serious consequences for
the support of the major donors, including: the GDP growth, which would then amount to only 1.9 per
International Monetary Fund (IMF), which approved cent in 2007. At the same time, exports recorded a leap
a Poverty Reduction and Growth Facility (PRGF) for of 9 per cent, to more than 6 million tonnes, as against
Congo in December 2004; the World Bank, through 5.5 million tonnes in 2005, mainly owing to the end-
an Economic Recovery Credit; and the African of-year sale of stocks. The volumes of crude oil delivered
Development Bank (AfDB), which approved a loan to to the Congolaise de raffinage (CORAF) oil refinery
support economic-reform programmes. These measures increased by 23.8 per cent over the same period. On
are aimed at attaining an average annual growth rate the other hand, the average price of Congolese crude
of 5.2 per cent in 2005-07 (with an average annual oil rose considerably, going from $28.9 per barrel in
growth of non-oil GDP of 5.4 per cent); at containing 2000-04 to $53 in 2005 and $69.6 in 2006, and bringing
the inflation rate at 2 per cent and at maintaining the about a corresponding rise in oil revenues.
current-account balance at an average of 3.3 per cent
of GDP. The expenditure policy is structurally geared In the first half of 2006, exports declined by 11 per
towards poverty reduction through an increase in the cent, whereas the production of gas remained stable
share of resources allocated to the priority I-PRSP compared to its 2005 level. However, in the area of oil-
sectors, i.e. education, basic health, the fight against related activities, investments made by the Total, Eni
HIV/AIDS, basic infrastructure, water, energy and and Zetah companies in the construction and
agriculture. The government has pledged to devote the maintenance work of oil facilities increased the turnover
additional tax revenues generated by the rise in oil of this sub-sector by nearly 37.5 per cent.

Congo Republic
The primary sector, which represents hardly 5 per for operators to process on-site 85 per cent of the logs
cent of GDP, was particularly characterised by uneven produced. The law also introduced a surcharge for
activity in the fishing sub-sector: while there was an companies not complying with this ratio. Measures
almost 24 per cent increase in the local production of have also been taken: for the implementation of
fish at the end of June 2006, shrimp production declined mandatory management plans for all forests and buffer
by 18.7 per cent compared with 2005. Forestry, the zones; for greater co-ordination between the ministries
second major primary sub-sector, showed an annual of forests and of finance to improve the setting, collection
growth of 15 per cent for four years running, after an and transfer of taxes due by this sector to the public
even stronger progression in 2002. This growth could treasury; for improvements in forest tax schemes and
continue for a few more years because production in the terms covering the social-responsibility of
(1.5 million m3, all species included) is below the operators in the sector; and for greater transparency in
potential of 2 million m3 that is compatible with the granting of forest permits.
international regeneration standards for forest
ecosystems. In the area of wood-processing (sawn The secondary sector generates almost two-thirds
timber, veneer and plywood), the new forest law which of GDP. It is dominated by the extractive industries,
came into force in January 2005 made it an obligation mainly oil and gas (nearly 2 307 billion CFA francs,
Electricity, gas and water

Services
0.7% 12.4%
Government
5% 197
3% Construction
Oil 64.1% 6.2% Trade, hotels and restaurants
4% Mining and industry
3.8%
0.7% Agriculture, livestock and fishing
Forestry
Source: Authors’ estimates based on local authorities’ data.

http://dx.doi.org/10.1787/725642664244
as against 1 389.5 in 2004). The backbone of is attempting to generalise the installation of electricity-
manufacturing activity (excluding refining and wood supply meters so as to improve the fight against illegal
processing) is made up of food and miscellaneous connections and fraud. However, the sub-sector does
industries, chemical industries, and metals and not generate enough electricity to meet demand, and
steelwork; in 2005, turnover progressed by 19 and the country remains dependent on supplies from
13.8 per cent, respectively, for the first two, and declined neighbouring Democratic Republic of Congo for nearly
by 1.6 per cent for the third. Turnover in the half of its needs.
construction sector grew by 16.2 per cent in the first
half of 2006 compared with the same period in 2005 The services sector, which represents more than
thanks to the resumption of a number of public works 20 per cent of GDP, also contributed to growth,
and to the completion of civil-engineering works although moderately (0.7 per cent), mostly in trade,
commissioned by oil companies. Despite the restaurants and hotels. The modern branch of trade has
deterioration of its electricity-generation facilities as a however suffered from competition from the informal
consequence of the war, the electricity sub-sector sector and also, despite rehabilitation work on the
experienced an increase in energy consumption of infrastructure of the Congo-Ocean Railway (COR),
4.6 per cent in 2006, owing to better management of from problems in supplying Brazzaville by rail from
supply by the national electricity utility (SNE), which Pointe-Noire. The other services sub-sectors, such as

Congo Republic

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 4.7 5.4 41.7 17.0 5.0
Private 21.9 17.0 12.0 8.0 5.0
Consumption 69.7 40.7 3.5 9.6 6.5

Public 24.2 13.2 -1.8 10.2 4.0
Private 45.5 27.4 5.7 9.4 7.4

Exports 76.3 87.1 5.8 -4.9 5.1
Imports -72.6 -50.2 7.4 6.1 3.8
Source: Directorate General of the Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/081640884701
transport and telecommunications, also took an upward fiscal management, convergence indicators and mutual
turn in 2005 (0.4 per cent), especially for the monitoring sometimes falls short of requirements.
telecommunications sub-sector, where the extension of
the telecommunications networks (particularly for In 2005, fiscal revenues increased by 67 per cent
mobile telephony) contributed to growth. compared with 2004, up from 746 billion CFA francs
198 to 1 245.7 billion in 2005; this figure includes
Growth was sustained in 2005 by the increase in 1 047.6 billion in oil proceeds, i.e. a 97.5 per cent
net domestic demand, with private and public increase from 2004, owing to a 12.5 per cent rise in
consumption rising from 1 114.6 billion CFA francs oil production and to world prices for Congolese
in 2004 to 1 280.3 billion in 2005, but falling back to crude oil. Non-oil receipts, which increased by only
1 238.1 billion in 2006. Private investments, especially 6 per cent, nevertheless benefited from improved
in the oil sector where they progressed by nearly 36 per VAT (Value Added Tax) and company tax collection.
cent in 2005 (536.5 billion CFA francs, as against Other revenues turned out to be lower than predicted
395.3 billion in 2004), were a good growth vector; because of a decline in customs revenues due to the
however, public investments showed relative stagnation. customs-duty exemptions granted on oil sector and
Although oil investments contributed to the rise in public-enterprise imports.
imports of goods and services, GDP growth was
supported by strong external demand, with exports of Thanks to relatively cost-restrictive management,
goods and services recording a total of 2 742.5 billion public expenditures increased moderately, up from
CFA francs in 2005, as against 1 938.2 billion in 2004. 656 billion CFA francs in 2004 to 746 billion 2005.
As a percentage of GDP, current expenditures were
18.3 per cent in 2005 due to continued budgetary
Macroeconomic Policies support to the CORAF oil refinery, as well as to a
5.8 per cent increase in wages and a 21.7 per cent rise
Fiscal Policy in expenditures on goods and services. Subsidies and
transfers to the poor also increased by 26 per cent, but
The state’s fiscal policy remains the main lever in primary expenditures on the fight against poverty rose
the fight against poverty, but the authorities’ compliance by only 0.5 per cent, to 4.9 per cent of GDP. Investment
with the standards adopted by the Economic and expenditures increased by 25 per cent. This expenditure-
Monetary Community of Central Africa (CEMAC) for containment policy resulted in a primary surplus

Congo Republic

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 9.8 8.6 8.7 6.7 6.1 6.8 6.8
Oil revenue 12.7 20.4 23.1 32.4 33.7 30.6 30.2
Interest 13.9 5.6 5.6 5.0 2.9 3.0 2.9
Primary balance -6.1 6.0 9.5 20.9 21.8 15.3 15.1

Overall balance -20.0 0.4 3.9 15.9 18.9 12.3 12.1
http://dx.doi.org/10.1787/575666174456
amounting to 20.9 per cent of GDP, but the Congo, where tense presidential elections were being
improvement is mainly due to the oil sector, which still held; ii) the election of President Denis Sassou Nguesso
largely dominates public resources and exposes them at the head of the African Union for a year, which
to unforeseeable external shocks. The overall balance resulted in off-budget expenditure assumed by the
on a commitment basis also showed a surplus, of Congolese treasury; and iii) the quasi-doubling of the
500.1 billion CFA francs (15.9 per cent of GDP), as investment budget, which had initially been estimated
against 89.5 billion in 2004 (3.9 per cent of GDP). at 185 billion CFA francs, including 150 billion from 199
This significant fiscal surplus generated some internal resources. Moreover, donors are showing
inflationary tensions, even although inflation was reluctance to disburse their share and are waiting for
limited to 2.5 per cent. Oil price subsidies, which were the conclusion of talks on the trade debt with the
close to 1.5 per cent of GDP in 2005, were brought London Club – a necessary stage in reaching the decision
down to 0.5 per cent in 2006, and they are expected point of the HIPC Initiative); the Paris Club has
to be abolished in 2007. meanwhile already cancelled nearly 25 per cent of the
external debt.
In 2006, revenues generally performed very well
(1 870.5 billion CFA francs, as against 1 245.7 in In 2007 and 2008, the country manifested its
2005), with the exception of customs revenues, which intention to use part of the oil-reserve fund for advance
balanced out at 2 billion CFA francs less than payment of the costly debts guaranteed by oil receipts
projections. Expenditures, on the other hand, largely and to increase expenditures aimed at achieving the
exceeded projections, going up from 746 to 984 billion Millennium Development Goals (MDGs). In addition,
CFA francs in 2006, and therefore, following a review in order to improve the control and auditing of
of public finances in October 2006, the IMF took the expenditures, a new law for government purchasing was
decision to freeze the third tranche of the PRGF for presented to parliament in late 2006, and a functional
failure to comply with budget-restriction measures. classification of expenditure will be put in place in the
The IMF has set conditions for the resumption of the course of 2007.
Facility in 2007: this will depend on Congo’s application
of ten measures relating to high and low limits for Monetary Policy
public-finance expenditures. The reasons for this
uncontrolled slippage were related to: i) the security Congo belongs to the CFA franc zone and to the
precautions taken by the state to face the risk of CEMAC: this means that monetary policy remains
population inflows from the Democratic Republic of subject to regulation by the Bank of Central African

Congo Republic
States (BEAC), which oversees the stability of prices On the other hand, credits to the economy grew
and of the exchange rate. Monetary evolution in 2005 slightly as a percentage of the broad money supply at
was marked by a decline in net domestic credit. The the beginning of the period (1.3 per cent, as against
country’s money supply nevertheless progressed at the 0.3 per cent in 2004); this increase was driven by
same pace as that of non-oil GDP growth and most of renewed activity in construction, telecommunications
the exceptional revenues in foreign currency were and energy, despite the banking sector’s reluctance to
sterilised through BEAC deposits. The rate of foreign- grant credits to enterprises (especially public enterprises)
exchange coverage of domestic currency settled in 2005 because of the large share of non-productive loans in
at 71.7 per cent, as against 29.3 per cent in 2004, its portfolio. The real exchange rate, which remained
placing it largely above the statutory minimum of 14 per cent lower than its level prior to the 1994
20 per cent. devaluation, depreciated only slightly in 2005 because
of the relatively low inflation rates in 2005 (2.5 per cent)
As a result of the increase in world prices of crude and 2006 (3.7 per cent).
oil, of the growth of the volumes of crude oil exports
and of the repatriation of the state’s oil revenues, the External Position
country’s net external position improved substantially,
increasing from 58.3 billion CFA francs at the end of In 2005, Congolese exports continued to be
December 2004 to 466.1 billion at the end of 2005. dominated by oil exports (2 298 billion CFA francs),
Moreover, Congo benefited from debt relief amounting representing more than 85 per cent of total exports.
to nearly 94.9 billion CFA francs under the second Driven by the imports of goods and services in the
tranche of the PRGF. private sector, particularly the oil sector, total imports
200 also increased appreciably (1 580.6 billion CFA
Domestic credit, which had slightly increased in francs, as against 1 314.5 billion in 2004). The strong
2004, fell in 2005, particularly with respect to credits growth of export income resulted in a surplus on the
to the state, indicating that the government resorted current account in 2005 amounting to 8.3 per cent
more to public-treasury savings and the central bank of GDP. This favourable evolution is due to the quasi-
in order to finance its needs. In addition, the state’s doubling of the surplus, in nominal terms, on the
outstanding debts to the banking sector recorded a net balance of current transactions, which came to
drop, falling from 185.1 billion CFA francs to - 1 161.9 billion CFA francs in 2005 as a result of the
59.6 billion at the end of 2005, thanks to the combined improvement in the terms of trade and of the hikes
effect of a better control of public expenditure and the in the world prices of oil, logs and timber. This
escalation of oil revenues. Hence the state’s net position positive situation made it possible to improve the
moved from 188.8 billion CFA francs in debt in 2004, country’s gross currency reserves, which rose to
to 61.3 billion in credit at the end of 2005. 7.3 months of imports in 2005.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 41.5 50.7 56.7 53.9 53.8 49.3 48.9

Services -38.0 -19.1 -18.9 -26.5 -20.3 -17.8 -17.4
Factor income -15.8 -16.4 -21.8 -19.5 -14.9 -21.7 -21.5
Current transfers -0.2 -0.5 -0.5 0.4 0.3 -0.4 0.1
http://dx.doi.org/10.1787/003371771264

Congo Republic

250
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF. 201

http://dx.doi.org/10.1787/320668854808
The services deficit grew in 2005, reaching the external debt (298.5 billion); the reinstatement of
835 billion CFA francs, as against 433.1 billion in the state’s position in relation to the banking system
2004, as an effect of the rise in transport and insurance (250.1 billion); and the withdrawal from the non-
expenditures. The factor-income balance also declined, banking sector (38 billion). Those needs were covered
falling from a 501.1 billion CFA franc deficit recorded by the mobilisation of external resources amounting to
in 2004 to a 612.9 billion deficit in 2005, owing to 5.9 billion in project grants, 10.4 billion in project
the increase in transfers of profits by the oil companies. loans, 13.9 billion in treasury loans and 94.9 billion
in debt relief.
The country remains highly indebted, with a total
debt stock evaluated at 3 512.4 billion CFA francs at
the end of 2005. Nonetheless, the government has Structural Issues
made significant efforts to reduce the debt, which
amounted to 4 322.4 billion CFA francs in 2000. The Recent Developments
ratios of debt-service to exports and to budget receipts
were thus brought down from 17.4 and 41.5 per cent The programme for public-sector reform and
in 2004, to 15.8 and 33 per cent in 2005, respectively. privatisation which was started in 1994 has suffered
The ratio of debt stock to GDP fell from 160.6 per cent greatly from the successive wars in Congo over the past
in 2004 to 111.0 per cent in 2005, but still remains ten years. The programme was reactivated in 1998
far from the 70 per cent criterion decided by the with technical support from donors, but has developed
financial community. The state’s overall financing needs under difficult political and economic conditions.
reached 125.0 billion CFA francs in 2005, taking
account of: the payment of domestic and external In terms of the objectives of the privatisation
arrears (69.7 billion CFA francs); the amortisation of programme, achievements remain marginal. Out of

Congo Republic
six enterprises earmarked for privatisation in the first with the surplus balance of the 1994 structural
part of the programme, only Hydrocongo (fuel adjustment plan (PAS). Also, the by-laws of the
distribution and marketing) has in fact been privatised; autonomous Pointe-Noire port authority were modified
the process is ongoing for the other five, but some of and a priority investment programme was drawn up;
these need first to be brought up to standard. financing for this amounting to 35 billion CFA francs
Concerning the second part, the MAB (livestock feed will be provided by the European Investment Bank, the
mill), two hotels (Palm Beach and Méridien) and AFD and the Development Bank of Central African
three banks have been privatised. In some cases, States. For the autonomous Brazzaville port authority
privatisation is quite problematic because of socially- and the secondary ports, a benchmark business plan
deteriorated situations in a number of public was drawn up to increase their performance; however,
enterprises, such as the national postal services and the financing of the rehabilitation programme has not
telecommunications bureau (ONPT) or the yet been completed. Following a call for bids, the
autonomous Brazzaville port authority. This has led Golliard company has been declared successful tenderer
the World Bank to cancel the International for the potential purchase of the shipyard. For the
Development Association (IDA) credit initially granted concession of river transport, the single bid from the
for the implementation of the privatisation programme enterprise NBTC (Niger-Benue Transport Company)
and to limit its aid to following up the implementation is still being examined. After an unsuccessful call for
process of the concessioning of the COR. financial bids for the privatisation of the COR, the
government opted for direct negotiations with
In the water and electricity sector, the calls for bids SHELTAM-MVELA, a consortium that submitted the
in 2002 for the concessioning of the national electricity financial parameters for the concession in 2004 and is
202 utility (SNE) and of the national water utility (SNDE) waiting for the authorities’ decision. Finally, decisions
were unproductive, despite the decree granting a will have to be made to finalise the
temporary concession of the SNDE to the British liquidation/privatisation of the LINA CONGO airline
company Biwater, which was later rescinded because company; negotiations are also in progress with an
of the substantial investments needed to bring the Italian company for the concessioning of the Sangha
infrastructure up to standard, as demanded firstly by Palm palm groves (palm oil). In the telecommunications
the partners. The World Bank and the government sector, the authorities have yet to define the final
therefore decided, through the IDA’s Transitional privatisation scheme (total or partial transfer of the
Support Strategy, to include the entire privatisation public assets) for the Congolese telecommunications
process of the SNE and the SNDE in infrastructure company (SOTELCO), for which the state has financed
rehabilitation under the project for the rehabilitation an organisational audit. As regards the Congolese postal-
of the water and energy infrastructure (PRIEE). The services and savings enterprise (SOPECO), which
cost of the water programme is estimated at remains public, the government has financed a study
9 billion CFA francs, 10 per cent of which is to be to establish SOPECO’s opening-balance sheet and
covered by the government, while the cost of the ONPT’s closing balance sheet.
electricity programme amounts to $25 million, to be
entirely financed by the IDA. To improve the SNE’s In a context of a downward trend in oil production,
financial situation, a programme to install a thorough institutional reform of the oil sector was
50 000 electricity meters began in 2005 and 2006, undertaken in 2005: this reform had become essential
and the pricing structure will be reviewed in 2007. for a sector that generates important resources for the
country. The purpose of the reform was to allow the
Other large public enterprises, such as the harbours state to allocate oil revenues to the country’s
of the former Congolese transport agency, ATC, are development with greater efficiency and transparency.
being restructured and the related studies are being The reform began in 2005 with the adoption of a
financed by the French Development Agency (AFD) strategy aimed at refocusing the activities of Congo’s

Congo Republic
national oil company, the SNPC, on its basic business Congolese railway network (795 kilometres) has
concerns, and this resulted in the liquidation of two experienced a considerable decline in traffic due in
of SNPC’s subsidiaries in 2005. The reform continued part to the very run-down state of its equipment and
into 2006, mainly addressing the organisation and to insecurity on its lines. This state of disrepair applies
management of the SNPC, which markets nearly two- equally to the port, maritime and river facilities. Air
thirds of the state’s share of oil (profit oil), controls 40 per transport, which is very little developed and is centred
cent of the state’s total oil income, and supervises the on the two main international airports, Brazzaville and
oil sector and the budget flows on its behalf. With the Pointe-Noire, remains to be developed in order to face
backing of AfDB, IDA and IMF, the state also sub-regional competition efficiently. Most of the
undertook: i) to review the SNCP’s accounting and secondary airports, which could have offered possibilities
internal-control systems by providing the external for servicing populations situated in remote areas, are
auditor, KPMG (Klynveld Peat Marwick Goerdeler), in disrepair and pose problems of flight security.
with the necessary documentation to enable it to certify
the oil receipts and to guarantee that the revenues due The development of the private sector is
to the state by the SNPC, by its customers and by its encountering enormous difficulties, and the regulations
private-sector partners were in fact transferred to the that govern its operations are considered obsolete insofar
public treasury; ii) to review how the SNPC markets as the needs of a modern, competitive economy are
oil products, with the aim of matching best international concerned. According to the World Bank’s Doing
practices and ensuring a profitable price for the country; Business 2006 report, Congo’s business climate possesses
and iii) to eliminate any conflict of interests through significant deficiencies, particularly in what the report
the enactment of legislation, to be certified by the refers to as the “Ease of ”: paying taxes, where Congo
national anticorruption commission, that requires that, is ranked 170 out of 171 worldwide; trading across 203
while they exercise their position, SNPC management borders, for which procedures are particularly laborious
executives withdraw from any form of participation or (rank 166); registering property (rank 163); and
investment in subsidiaries of the company or in enforcing contracts (rank 155).
companies doing business with it. Finally, an internal
auditing committee was recently set up to monitor the The banking and financial system is ineffective and
implementation of the accounting, auditing and internal incapable of satisfying the demand for credit, because
control procedures and to supervise the application of of its low human and financial resource capacities, or
the SNPC auditing recommendations. The state has else the unsuitability of the products offered to
also recently decided to impose the systematic recourse customers. Nonetheless, in order to inject dynamism
to competitive calls for tenders for all contracts for the into this sector (especially the almost embryonic financial
execution of works and for purchases of goods-and- market), some significant restructuring and privatisation
services when these exceed 20 million CFA francs. efforts have been made during the past few years, with
the privatisation of the COFIPA investment bank and
Basic economic infrastructures (which directly affect the planned creation in 2006 of a bank for the housing
the living conditions of the population) and collective sector, the Banque de l’Habitat, with majority Tunisian
infrastructures are very poorly developed and, moreover, capital. Investment on the whole remains limited, and
in a state of great disrepair. For example, the road business credit is low and practically inexistent for poor
network, totalling 17 300 kilometres, only about populations, who are forced to resort to (recent and little-
1 235 kilometres of which are asphalt, has deteriorated developed) microfinance structures.
and suffers from lack of maintenance. The rural earth
roads, which are needed for distributing rural products, In the domain of agriculture and natural-resource
are for the most part impassable, and hence contribute and environmental management, efforts have been
to the sharp decline in the population’s purchasing made to energise forestry and preserve forest potential
power and to the amplification of poverty. The through better management of the sector. Forest law

Congo Republic
is aiming at a more efficient rotation system for log the MDGs indicate that 68 per cent of households
cutting and processing, in order to improve the have access to drinking water on the national level,
exploitation and rational regeneration of this resource. 52 per cent of these being in semi-urban areas and
In the mining sector, the controls necessary for putting (depending on sources) 15 to 28 per cent in rural areas.
the country back into the Kimberley Process for Only 19 per cent of households – none of which are
diamonds have been set up. in rural or semi-urban areas – have access to sanitation,
and only 6 per cent have modern latrines (Pointe-Noire
Access to Drinking Water and Sanitation has the best level of equipment, at 13.5 per cent). In
Brazzaville, a conurbation of more than one million
Congo is rich in water resources, its rainfall is inhabitants, it is estimated that only 30 per cent of
abundant and the drainage network consists of the households have direct access to a water-supply point.
Congo and Kouilou-Niari River basins. However, some The rest of the population obtains its supply through
regions, especially the table-land region and the northern informal means (neighbours, water carriers or traditional
suburban area of Brazzaville, depend on scarce sources). This situation is likely to deteriorate: the
underground resources for their water supply. Surface SNDE is finding it hard to ensure the maintenance of
and underground water, although easily collected, the network because 50 per cent of users with
remains very vulnerable, because it is exposed to the operational connections do not pay their water bills.
natural hazards inherent to heavy rainfall (floods, serious
erosion, etc.) and to anthropogenic pollution, due Contrary to the findings of the 2005 ECOM survey,
mostly to the fact that surface water is used for the which argued that “access to drinking water is far from
evacuation of various kinds of waste. being problematic” in Congo, it is important to
204 underline the disparities in conditions of access to basic
The SNDE is in charge of drinking-water services, especially as the lack of data on these conditions
distribution, but it serves no more than 18 urban water- of access makes it impossible to establish an exhaustive
supply centres, 3 of which are no longer operational. inventory. The supply level in rural areas hence remains
Moreover, this utility company sells only 54 per cent very low, and high geographical disparities persist. For
of the volume of water produced (39 million m3) and example, 48 per cent of villages are equipped with
its technical and commercial situation has continued water points in the Lékoumou region, whereas the rate
to deteriorate since 2004. In Brazzaville for example, in the departments of Kouilou and Likouala is under
it appears that only half of the subscribers are invoiced 5 per cent. In urban areas, estimation of the servicing
regularly, on a flat-fee basis, because the water meters rate is imprecise because it relies on the number of
have disappeared; also, only 68 per cent of water samples connections and not on the number of active subscribers.
meet the quality standards. Besides, no distinction has been made between
household consumption and the consumption of public
An act voted in February 2003 aims to transfer subscribers, large estates, industries and businesses.
jurisdiction to local authorities; which will then have Analysis of the supply conditions in urban areas shows
important responsibilities in the field of water, but the that the real servicing rate, in terms of individual
overall paucity of their human, material and financial connections, is deteriorating and probably only amounts
resources is a major obstacle to this transfer. The private to 15 per cent at the present time.
sector is a stakeholder in water-resource management,
but it is still in an embryonic stage (research offices, Concerning cleansing and sanitation, only the
construction and service enterprises). capital city has a household-refuse disposal service, but
this benefits only 41 per cent of the households –when
According to the Congolese household survey for refuse is removed regularly, which is far from being
the evaluation of poverty (ECOM) of 2005, the coverage the case. Since there is no sewerage network, most
rates for drinking water and sanitation as defined by industries, hotels, health centres and shopping centres

Congo Republic
use their own facilities. Sludge and waste-water flow sector; it also provides for the delegation of drinking-
into the river and its affluents, and there is no quality water supply in the form of concession, contracting or
control of the waste. Various studies which have been local authority, to one or several legal bodies under
conducted on faeces-management practices, particularly private law. On the other hand, the institutional
in Brazzaville, reveal that the population is exposed to framework for sanitation is lacking in clarity, with
major faecal danger. The sanitation blueprint for responsibilities scattered amongst the ministries
Brazzaville needs to be updated to take into account responsible for the environment, for hydraulics, for
the evolution of the city’s urbanisation. Resources need health and for public works. Since budget classification
to be mobilised to finance gutter-cleaning at least once does not explicitly mention sanitation, national efforts
every five years. in this domain are difficult to evaluate.
Moreover, as the insufficiency of transfer sites and The institutional framework for the development
landfills induces the population to use rainwater drainage of the sanitation sector has yet to be defined and no
channels, it will be necessary to install two transfer investment is planned in this domain. The authorities
sites per precinct and three final-disposal landfills (at should, therefore, either set up a single authority in
the north, west and east of the city). The under- charge of sanitation (waste-water, faeces, rainwater,
equipment of the agents involved, especially in terms solid waste), or else redistribute government tasks more
of vehicles and loaders for disposing waste in final- effectively. Analysis of the strategic memo for the water
disposal landfills, also constitutes a problem. It will and sanitation sector prepared in the framework of the
also be necessary to establish sanitation blueprints for PRSP reveals the absence of an appropriate strategy for
all municipalities and to reinforce the application of the development of the sector and for improved access
waste-management regulations. Furthermore, in order to these services by the most underprivileged 205
to draw up local waste-management plans, it will be populations.
necessary to make an inventory in each municipality
of the quantities of waste, waste-water and faeces Civil society is also organising its participation in
produced. the development of the water, sanitation and hygiene
sectors; its actions specifically include: the regional
The objectives announced in December 2005 by centre for low-cost drinking water and sanitation
the Minister of Energy and Hydraulics (MEH) for (CREPA); the citizens’ dialogue programme
drinking-water supply aim at servicing the country’s (mobilisation of more than 100 local organisations to
10 department capitals, at increasing the coverage rate draw up an “advocacy for access to drinking water”
in rural areas to 75 per cent by 2015, and at servicing document); and the mobilisation of local organisations
the 86 district capitals and all urban centres of more by the Research and Technological Exchange Group
than 5 000 inhabitants; however, the implementation (GRET) for the implementation of alternative drinking-
strategy for attaining these objectives has yet to be water services in suburban areas. The citizens’ dialogue
defined. programme was launched in September 2004 in the
framework of a partnership between the Forum des
In December 2005, a roadmap for the promotion jeunes entreprises (“young enterprises forum”, one of
of an integrated management of water resources was the largest NGOs in Congo) and a French NGO, the
adopted. This act includes the water law adopted in April French Committee for International Solidarity. This five-
2003, but for which there have been no application year programme benefits from financial support from
decrees as of yet; it provides specifically for the the French Ministry of Foreign Affairs. Also, the Global
establishment of new management bodies for the sector, Water Partnership (GWP) aims to set up national water
such as a consultative water council, a national agency partnerships whose role will be to support the
for rural hydraulics, a regulatory agency for the water government in preparing and implementing an action
sector and a development fund for the water and energy plan for the integrated management of water resources.

Congo Republic
The roadmap accepted in December 2005 proposes that definition of the roles of the different players at national
the consultative water council planned under the water level, as well as of the assets they possess and the actions
law should constitute GWP’s national dialogue they can undertake.
platform. The French Ministry of Foreign Affairs is
providing financial support to the GWP regional co-
ordination initiative for Central Africa. Political Context and Human
Resources Development
The state’s investment budget in the water sector
planned for 2006 amounts to 9 billion CFA francs, In 2006, the political context was marked by an
which is less than 15 per cent of the total investment appeasement approach on the part of the authorities,
budget of the Ministry of Energy and Hydraulics; who allowed an important opposition leader to return
moreover, experience has shown that this budget is from exile; they also plan to organise parliamentary
often executed at no more than 30 per cent of initial elections open to all political tendencies in 2007.
projections. The strategic memo for the water and
sanitation sector drafted for finalising the PRSP sets out Unemployment is higher amongst women (20.6 per
the list of priority investments proposed in the cent) than men (18.1 per cent) in all economic strata.
framework of the poverty-reduction strategy without The adult literacy rate is 80.4 per cent, which is a good
any mention of the expected impact. The investments performance for a country of sub-Saharan Africa, where
necessary for achieving the MDGs relating to drinking the average is below 50 per cent, but there is a big
water and sanitation (faeces and waste-water gender gap in this figure, amongst both the poor and
management) would amount to an average of the non-poor: amongst the poor, the rates are 86.3
206 22 billion CFA francs per year over the next ten years. and 68.2 per cent for men and women, respectively,
and amongst the non-poor, 91.7 and 76.6 per cent,
Many multilateral and bilateral co-operation respectively.
programmes have been cancelled following the country’s
turmoil since 1997. The World Bank froze its The net school enrolment rate is 86.8 per cent,
commitment in the financing of the PRIEE, while the which is considerable compared with the sub-Saharan
AFD, without co-ordinating with the World Bank, is average, but the figure is a flimsy mask pulled over the
considering gearing its support exclusively towards mediocre quality of the system with regard to the
developing the supply of water in peri-urban districts age/level standard. These results are partly the
from boreholes. The UNDP is highly involved in the consequence of the social and political instability the
sanitation sector, and the AfDB, through the African country has experienced since the 1990s, since there
Water Facility, is preparing to provide institutional are now catch-up effects. In secondary schooling, the
support to the country by drawing up a national gross enrolment rate is estimated at 65.3 per cent and
document on water-policy and by making an inventory the net rate at 44.4 per cent. In higher learning, the
of resources and needs. gross and net enrolment rates are 10.1 and 2.3 per
cent, respectively. The drop-out rate is relatively low
The current organisation of the water sector and for both primary and secondary schools, but is about
its place in government priorities make the ambitions three times higher in the upper secondary school (7.5 per
announced in December 2005 by the MEH unrealistic. cent). For both primary and secondary schools, the
To improve the state’s vision of the sector and make it non-poor benefit from better access in every region of
a higher priority, the authorities require drawing up a the country. From the point of view of residence, the
more realistic short-term action plan that would benefit rate of access to schools is higher in urban areas than
poor populations more quickly. An action plan of this in rural areas, irrespective of the schooling level or the
kind would no doubt lead to better mobilisation of the poverty level of the households. The cost of access to
international partners and, above all, provide a clearer school is, however, high for all social strata.

Congo Republic
According to data from the Demographic and government, the World Bank and the UNDP. This
Health Survey which was conducted in 2005 (DHS survey showed that the social situation is marked by
2005) with the support of the IDA and the United an incidence of poverty reaching almost 50.1 per cent
Nations Children’s Fund (UNICEF) and used in and is characterised by the insufficiency of health
finalising the PRSP, the infant mortality rate was services, sanitation and basic education (with falling
estimated at 75 deaths per thousand live births, while enrolment school success rates), and by a high prevalence
the child mortality rate was 44 per thousand. Overall, of HIV/AIDS. The various results revealed that poverty
the infant-child mortality rate is 117 per thousand, in Congo is characterised by monetary poverty, affecting
which means that one child out of ten in Congo dies 42.3 per cent of households, or 1 779 300 persons in
before the age of five. The mortality rate is distinctly all. Poor households are found most often in peri-
higher in the countryside (136 per thousand, as against urban and rural areas, as well as in Brazzaville. The
108 in cities). In a per region analysis, the rate varies average age of poor household heads is 48 (47 for men
from 102 per thousand in Pointe-Noire to 142 per and 50 for women).
thousand in the north. For the same period, the maternal
mortality rate is 781 deaths per 100 000 births. Households headed by women comprise relatively
more poor persons than those headed by men, and
The average coverage rate for children aged from large-sized households are the most affected. The poor
12 to 23 months for complete vaccination against the can be distinguished from the non-poor by level of
target diseases of the Extended Vaccination Programme education, with the poverty rate declining as the level
is 52 per cent, but this rate is distinctly lower in rural of education rises; this shows that the poor usually
areas (41 per cent) than in urban areas (64 per cent). drop out of the education system earlier and only rarely
This disparity is even greater between the regions of go beyond the primary-education level because of the 207
the north (33 per cent) and the Brazzaville/Pointe- relatively high cost of school. Hence, a greater proportion
Noire zone (64 per cent). The survey found that the of illiterate individuals of 15 years and over is found
vaccination rate increases in proportion to the mother’s amongst the poor. The survey also revealed that the non-
education level and also in proportion to household working population is the population category most
income and standard of living (29 per cent of children exposed to poverty. In the working-population group,
in the poorest quintile vaccinated, as against 73 per cent household heads working in the agriculture,
in the richest quintile). construction, mining and manufacturing sectors are the
ones most frequently facing difficult living conditions.
HIV/AIDS prevalence was estimated by the Joint This situation is aggravated when they work in the
United Nations Programme on HIV/AIDS at 5.3 per informal sector.
cent in 2006. As early as 1985, the setting-up of a
scientific committee for the diagnosis and fight against The survey showed that, bearing in mind the causes
HIV infection constituted the first stage of an overall of poverty identified by the households themselves,
countering strategy. In 1987, a national programme for the priorities of government action should be mainly
fighting the disease reinforced this first stage and made directed towards structural investments (employment,
it possible to implement a short-term emergency plan, school and health infrastructures, roads, water points,
followed by two medium-term plans (1989-91 and etc.). In fact, the survey revealed that 97 per cent of
1996-98) financed by the World Health Organization. the poor attribute their poverty to their lack of work,
47 per cent to the absence of transport and travel
With respect to the poverty profile, the PRSP infrastructures, and 41 per cent to the lack of care and
preparation process necessitated the completion of the medicine. Hopes were also expressed that the state
ECOM survey on the living conditions of households would: increase the number of primary-school classes
(the first survey of its kind to be conducted on a national and/or primary schools in urban areas in order to solve
scale in Congo), which was jointly funded by the the problem of extremely over-crowded classrooms;

Congo Republic
encourage poor parents to keep their children longer The labour market in Congo is characterised by a
at school by offering better education; reduce the cost national unemployment rate of nearly 19.4 per cent.
of education services; and improve teachers’ working This is higher in Brazzaville and in Pointe-Noire, where
conditions and training. In the area of health, households it is estimated at 32.6 per cent and 31.5 per cent,
hoped that the state would: reinforce prevention against respectively, while it is distinctly lower in the rural
the principal endemic diseases, especially in poorer areas (5.8 per cent). The activity rate of persons of
social categories; raise public awareness about the 15 years and over was estimated at 69.4 per cent in 2005.
dangers of self-medication, which is a very widespread The rate is higher in rural areas that in urban areas
household practice, especially in non-poor households; (93.8 per cent, as against 81.4 per cent) because
reinforce awareness campaigns in the area of family employment there is less formal and therefore more
planning, especially in rural areas; expand public health flexible. More than half (56 per cent) of the working
infrastructures and bring them closer to residential population aged 15 years and over have a job, and the
areas, especially in rural areas; and re-examine, majority live on agriculture (35.6 per cent) or trade
harmonise and reduce the cost of health services. The (20.7 per cent). The proportion of persons employed
survey also highlighted the need to promote and develop in industry is relatively low (16.3 per cent). For men,
activities and employment in the agricultural sector 57.7 per cent are in employment, as against 54.5 per
and in sectors where natural resources are abundant and cent for women. The employment situation is
under-exploited, such as fishery, hydraulics, and mining. preoccupying, because most of the occupied working
Special interest should also be given to the situation of population (70 per cent) is self-employed and 75 per
women in urban and rural areas so as to guarantee cent are considered poor.
them sustainable means of existence.
208

Democratic Republic
of Congo
Kinshasa
key figures
• GDP per capita, $ PPP valuation (2006) 856
Democratic Republic
of Congo
Lake Édouard
Lake
Maï-Ndombe
Lake
Tanganyika
Lake Moero
T HE FIRST FREE ELECTIONS IN 40 YEARS (presidential, economy. The most optimistic forecasts indicate that
parliamentary and local) made 2006 a very important the completion point for the Highly Indebted Poor
year, which also saw the adoption of the national Countries (HIPC) Initiative will be reached at the end
constitution for the Third Republic. The elections of 2007, after application of a poverty reduction and
mostly went well, but the Democratic Republic of growth strategy paper
The elections went well,
Congo (DRC) struggled to maintain macroeconomic (DSCRP) and its assessment
but the authorities are having
stability and suffered major conjunctural upsets. Public during 2007.
difficulty maintaining
finances went off track in 2006, aggravating the nominal
macroeconomic stability
budget deficit, stepping up inflation and leading to a Generally speaking, the
and there is a risk of spiralling
depreciating currency. The budget excesses, which were DRC’s new leaders face very
inflation and public spending.
directly linked to the implementation of the various great challenges in all
elections, to maintaining security in the country and economic, social and political spheres. The country is
to restoring civil servants’ wages, reflected the one of the world’s poorest and years of war have
vulnerability of the economy to external contingencies. destroyed most infrastructure and productive activity.
The still very large external debt is a brake on the Its inhabitants live in deplorable economic and sanitary
211
Source: IMF and local authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/266155225581

D.R. Congo
conditions, especially in the east, where bands of rebels from them have slumped. The agricultural sector is a
are still striking. Social indicators are so low that it will cornerstone of the DSCRP and of the multi-sector
be virtually impossible for the country to reach even emergency programme for repair and reconstruction
one of the Millennium Development Goals (MDGs). (Programme multisectoriel d’urgence pour la réhabilitation
Only 22 per cent of the population have access to et la reconstruction – PMURR) due to its importance
drinking water and only 9 per cent to sanitation, with in boosting food security and reducing poverty.
wide regional and urban-rural disparities.
The DRC has enormous mineral potential, but
However, potential for growth and economic mining only accounted for 8.8 per cent of GDP in 2005
development is immense. The country is literally and its performance was far from that expected. The
brimming over with water, mineral, forest and oil country has 34 per cent of the world’s known reserves
resources. The domestic market serves more than of coltan and 10 per cent of its copper, as well as
60 million people. The international community as a uranium, cobalt, zinc, silver, diamonds, gold and oil.
whole, with both foreign-aid donors and private Growth of mining is hampered by overall bad
investors, is watching the post-election period closely, management of resources, fraud and slow structural
as it will be decisive for reviving projects and reform, and the country has not been able to benefit
programmes. If political stability and democracy manage fully from the opportunities provided by rising world
to take root, with restoration of state authority, good metal prices. The copper sector grew by 33.7 per cent
governance and a fight against corruption, the DRC in volume in 2005 due to higher production but only
could well be posting excellent economic results in a 4.4 per cent in 2006 because of a drop in output and
few years time. problems in the state-owned mining enterprise
212 Gécamines. Prospects for copper are quite good however.
With the end of the fighting and with massive A mixed-capital enterprise, Kamoto Copper Company
foreign aid, real GDP growth speeded up, from 3.5 per (KCC), revived copper and cobalt production in
cent in 2002 to 6.5 per cent in 2005 and 2006. This Katanga’s mining centre of Kolwezi in mid-2006. After
excellent performance should continue, with growth a five-year warm-up period, annual production should
expected to be 6.2 per cent in 2007 and 6 per cent in exceed 150 000 tonnes of copper and 5 000 tonnes of
2008. Growth in 2006 was boosted by copper, cement, cobalt.
wood, beverages (alcoholic and soft drinks) and
electricity. However, more than 80 per cent of the Oil output is declining and shrank 1.5 per cent in
economy is in the informal sector. real terms in 2006 after a drop of 8.9 per cent in 2005
(9.2 million barrels in 2005, down from 10.1 million
in 2004) because of delays in renovating wells. Also,
Recent Economic Developments only the coastal area is being tapped, though test-wells
in the past have shown presence of oil in the centre and
The agricultural sector grew at about the same rate east of the country. Industrial output of diamonds has
as the population did in 2006 – around 3 per cent – also been disappointing and fell 26.7 per cent in 2005,
because of the lack of major roads and agricultural while artisanal production rose 33.1 per cent, though
service roads. Agriculture employed more than 70 per this rise seems to have peaked, with negative growth
cent of the population and provided 46.7 per cent of of 13.6 per cent in the first nine months of 2006. This
GDP in 2005. Food crops (manioc, maize, rice and fall in production was due to the depletion of mines,
plantain) dominate the sector. The potential is huge lack of capital to purchase spare parts and fierce rivalry
because only 10 per cent of arable land is cultivated or between the state-owned mining enterprise Minière
used for livestock. Agricultural exports are mostly de Bakwanga (Miba) and about 10 000 illegal workers.
coffee, cocoa, wood and rubber, but yields of these Some $10 million worth of diamond-mining equipment
items have collapsed in recent years and export revenues could not be used in 2006 because of lawlessness at the

D.R. Congo
Source: Authors’ estimates based on central-bank data.

http://dx.doi.org/10.1787/785001361156
Miba mines. The resulting drop in production caused The tertiary sector was 27.9 per cent of GDP in
cash-flow problems, failure to pay Miba’s 2005 and grew 7.8 per cent in real terms, largely thanks
6 500 employees and increased unpaid debts to to transport, telecommunications and financial services.
suppliers. Official figures show an 80 per cent fall in The DRC also has untapped potential for tourism.
the volume of diamond exports in 2006.
Household demand in 2005 was in step with these
The industrial sector supplied 13.7 per cent of sector increases, as was public consumption, helped
GDP in 2005 and grew 9.3 per cent in volume, with by external funding. Public consumption grew strongly,
construction and beverages taking the lead. Alcoholic by 22.5 per cent in volume, in 2006, an election year.
beverages, especially beer, showed a 16.7 per cent Final consumption should grow more slowly in 2007 213
growth rate in September 2006 (down from 18.9 per and 2008 (less than 4 per cent in volume) and its
cent year-on-year). Cement production in volume was share of GDP is expected to fall, from 97.7 per cent
good in 2005 (up 26.2 per cent) and 2006 (up 9.7 per in 2006 to 93.5 per cent in 2007 and then 88.7 per
cent), mainly due to the country’s reconstruction and cent in 2008, while private savings should increase.
huge needs. Log production increased substantially, Domestic savings rates, however, will probably not be
by 16.8 per cent in 2005 and by 54 per cent in the first enough to fund domestic investment and recourse to
five months of 2006. foreign savings seems inevitable in the next few years.

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 0.1 3.7 9.0 28.0 30.0
Private 17.7 10.5 7.9 30.0 25.0
Consumption 83.3 93.5 9.2 3.8 3.4

Public 8.2 8.3 22.5 6.8 6.9
Private 75.1 85.3 7.9 3.4 2.9

Exports 27.3 31.6 13.8 7.5 7.8
Imports -28.5 -39.3 25.1 4.0 4.3
http://dx.doi.org/10.1787/623432437015

D.R. Congo
Fixed capital formation will have steadily risen during Fiscal Policy
2000-08, from 3.4 per cent of GDP in 2000 to an
estimated 19.1 per cent in 2008. The investment rate The 2005 budget deficit was 2.7 per cent of GDP
fell slightly, from 14.2 per cent in 2005 to 13.6 per (down from 4.1 per cent in 2004) and is estimated at
cent in 2006, because of low public investment. Money 1.2 per cent in 2006. It should increase in 2007 to
that should have gone to government capital 1.4 per cent and in 2008 to 1.9 per cent. The deficit
expenditure was used in current expenditure during was reduced in 2005 and 2006 by a substantial increase
the election period. Both private and public investment in revenue, but especially by the international
in volume is expected to increase substantially, by community’s grants and budgetary support for the
29.2 per cent in 2007 and 26.3 per cent in 2008, and elections, peace-keeping and reconstruction. Grants
suggest speedier economic growth. were about one-third of government revenue in 2005
(5.2 per cent of GDP). External aid in 2006 was a
huge 57 per cent of the government’s budget
Macroeconomic Policies ($2.2 billion, or 9.5 per cent of GDP) and should fall
only slightly in 2007 (to 9.0 per cent) and 2008 (to
The aim of the government’s three-year economic 8.5 per cent). Tax revenue is expected to remain high
programme (Programme économique de gouvernement (8.9 per cent of GDP in 2007 and 8.4 per cent in
– PEG), is macroeconomic stability and renewal of 2008) due to increased growth and resumption of
growth. It was originally meant to last until the end of productive activity. Oil revenue has also risen
2006 but results were unsatisfactory because of excessive significantly thanks to higher world oil prices, which
government expenditure and the slow progress of were raised five times in 2005 and three times in 2006,
214 structural reform. The sixth review by the International when they rose more than 11 per cent.
Monetary Fund (IMF) in late March 2006 resulted in
a freeze on budgetary support and the country adopted Along with all this, government expenditure was
a bridge consolidation programme (Programme relais much greater than expected in the second half of 2005
de consolidation – PRC) in April that year, losing and several times in 2006, especially in April, when it
$40 million of IMF funding. A new three-year Poverty was more than CDF 13 billion ($29 million) in excess,
Reduction and Growth Facility (PRGF) is expected to in July (CDF 9 billion – $20 million) and in September
be signed with the IMF for 2007-09. (CDF 12 billion – $27 million). One reason was the

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 5.4 4.9 7.5 8.6 9.3 8.9 8.4
Other revenue 1.2 0.8 2.0 2.9 3.2 3.2 3.4
Grants 2.0 2.0 2.0 5.2 9.5 9.0 8.5
Interest 0.3 3.4 3.6 3.4 3.2 2.4 2.1
Primary balance -2.6 -2.5 -0.5 0.7 2.0 1.0 0.1

Overall balance -2.8 -5.9 -4.1 -2.7 -1.2 -1.4 -1.9
Source: IMF data; estimates (e) and projections (p) based on authors’ calculations. http://dx.doi.org/10.1787/022083357032

D.R. Congo
lawlessness in the eastern part of the country, as well was revised to 9.5 and then 15 per cent. The goal is to
as bonuses for police to ensure security during elections bring inflation below 10 per cent in the next two years
and extra expenditure connected with the voting. (7.4 per cent in 2007 and 7.1 per cent in 2008). The
Another was the civil-servants census, which ended BCC also found it increasingly harder in 2006 to
payments to non-existent officers but also led to immediately honour in cash cheques it issued.
payment of wage arrears to public servants who had
not been paid for months. A third reason was that The Congolese franc is a floating currency and
decentralisation led to a higher rate of surrender of the depreciated more than 18 per cent in 2006 in relation
budget to provincial services and decentralised bodies. to the benchmark US dollar. The PRC had projected
The large domestic debt also meant quite heavy debt a rate of CDF 526 to the dollar at the end of 2006 but
service payments, aggravated by higher fees by the it had risen to more than 530 by November. The
central bank (BCC). Debt servicing was 3.4 per cent economy is highly dollarised as a result of successive
of GDP in 2005 and is estimated to have been 3.2 per devaluations and inflationary pressure and 99.5 per
cent in 2006. It should be less in 2007 and 2008, as cent of quasi-money (the sum of time deposits and
steps to relieve the debt are taken. Finally, the savings deposits) is in foreign currency.
government’s much higher operating expenditure was
partly caused by a lot of travel and missions by ministry The programme for monetary cooperation in Africa,
officials. All these expenditure excesses meant the budget PCMA, aims to set up a single monetary zone with a
execution rate was very uneven. In 2005, when the single African currency by 2021, which means countries
execution rate of operating expenditure was 243.9 per will have to meet convergence criteria. The DRC had
cent, capital expenditure, essential for reducing poverty, met only one of four primary convergence criteria by
had an execution rate of only 12.1 per cent. Total 2006 (public deficit as percentage of GDP, excluding 215
government spending is expected to be a high 22.5 per grants) and only two of seven secondary ones (non
cent of GDP in 2007 and 22.8 per cent in 2008. accumulation of new domestic and foreign debt arrears
Capital expenditure should rise from 3.7 per cent of and maintaining positive real interest rates).
GDP in 2007 to 4.5 per cent in 2008 if the money freed
up by debt relief is indeed reallocated to infrastructure Otherwise, commercial banks seem to be doing
and poverty reduction. better, with increased deposits and liquidity in 2006
as well as 15.5 per cent more loans granted to the
Monetary Policy private sector. Banks have greatly relaxed their rules and
expanded their range of products in a bid to attract more
Monetary policy has been hit by this budget savings. For instance, the $10 000 minimum required
performance and to fund the extra expenditure in the to open a bank account has been abolished in a context
absence of an effective financial system, the government of competition amongst the new banks. The Banque
has resorted to printing more money. The substantial internationale pour l’Afrique au Congo (BIAC)
issue of insufficiently secured currency by the BCC introduced an “Ekonzo” savings account in 2005,
speeded up inflation and increased exchange rates, thus without charges for opening and holding an account
devaluating the local currency, the Congolese franc. To and with annual interest on the average balance. The
curb the inflation, the BCC tried to limit the money BCC also received more requests to open new banks.
supply as much as it could. Bank refinancing rates rose Microfinance is flourishing and enables many Congolese
several times in 2006 and from 28.5 to 45 per cent over to start small businesses.
the year. Reserve-requirement rates went up from 2 to
3 per cent, then to 4 per cent, doubling the amount External Position
of money immobilised. Inflation was kept to an annual
22 per cent in 2006 (against 21.4 per cent in 2005), The DRC belongs to four regional groupings: the
far from the 8 per cent annual target of the PRC, which Southern African Development Community (SADC),

D.R. Congo

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 6.6 -2.7 -3.7 -2.8 -5.6 -4.2 -2.4

Exports of good (f.o.b.) 19.2 23.6 27.6 28.9 28.1 28.2 29.2
Services -7.5 -4.5 -5.1 -4.9 -6.3 -5.5 -5.3
Factor income -6.6 -3.0 -4.5 -4.8 -4.8 -4.1 -3.3
http://dx.doi.org/10.1787/333143703213
the Common Market for Eastern and Southern Africa produced a positive balance ($529.5 million), thanks
(COMESA), the Economic Community of Central to public transfers, the magnitude of which (11.9 per
African States (ECCAS) and the Economic Community cent of GDP in 2006, up from 7.7 per cent in 2005)
of the Great Lakes Countries (ECGLC). It benefits was able to bring about a slight improvement of the
very little from these agreements, however, because its current-account deficit (from 4.9 to 4.8 per cent of
exports are not very diversified. About 56 per cent of GDP) despite the greater trade deficit. The trade
the country’s $2.07 billion export earnings in 2005 balance is expected to improve in 2007 and 2008 and
were from diamonds and 22 per cent from oil. In correspondingly reduce the current-account deficit
addition, the DRC depends very heavily on developed from 4.8 per cent of GDP in 2006 to 3.6 per cent in
countries for its imports. 2007 and 2.9 per cent in 2008.
216
Exports were 28.1 per cent of GDP in 2006 Foreign direct investment (FDI) in the DRC
(28.9 per cent in 2005). Despite higher world oil and amounted to $500 million in 2006, up from
metal prices, the volume of exports slumped badly, $405 million in 2005 and from an average of only
especially of oil and diamonds, due to smaller $5 million between 1990 and 2000. Foreign investors,
production. About 26 million carats of diamonds especially from China and South Africa, diversified
(worth $624.7 million) were exported to Israel and their capital spending into the mining sector, as well
Belgium in 2006, most of them industrially mined as into the energy and banking sectors. The return of
alluvial stones from the central region of Kasai. Apart peace and the successful elections should attract even
from export duties, the government collects a 2 per cent more FDI. A South Korean enterprise, Bleu Tech
tax on the value of all exports. The total value of exports Business Group, has announced that it will shortly
was slightly down in 2006 and is expected to stagnate build motorways and high-class hotels in the DRC.
in 2007 at 28.2 per cent of GDP before improving to
29.2 per cent in 2008 as raw material production picks The country is eligible for debt relief under the
up and exports diversify. Copper and cobalt should HIPC Initiative and the Multilateral Debt Relief
boost export earnings in the next few years. Initiative (MDRI) and can expect its more than
$14 billion of debt to the World Bank, the IMF and
Economic growth and reconstruction increased the African Development Bank (AfDB) to be entirely
the share of imports in GDP from 31.7 to 33.7 per cancelled. Nonetheless, 2007 will be difficult for the
cent in 2006. The trade deficit worsened, from 2.8 external debt, as the adoption of the DSCRP in
percent of GDP in 2005 to 5.6 per cent in 2006, September 2006 ran into funding problems. It will be
when it was in the red by more than $468 million and a year after its introduction and assessment before the
the invisibles balance stood at more than $355 million HIPC completion point can be reached, so the DRC
in deficit. The revenues balance also showed a loss is unlikely to get any debt relief until 2008, when debt
amounting to $293.7 million. Only current transfers cancellation should amount to more than $7 billion.

D.R. Congo

Source: IMF. 217

http://dx.doi.org/10.1787/360646183580
The country’s debt amounted to $12 billion at the by parliament in a bid to attract foreign capital and
end of 2005, more than 150 per cent of gross domestic encourage projects and public-private partnerships.
product. Servicing it absorbs about 7 per cent of goods-
and-services exports. The DRC also uses the SYGADE Recent Developments
debt-management system to produce reports on the
public debt. The European Union announced at the The revival of copper and cobalt production by
end of 2006 that it would double its aid to the DRC. the enterprise KCC is the country’s biggest private
investment since its independence. The state mining
company Gécamines has a 25 per cent share in the
Structural Issues enterprise, which is otherwise controlled by the private
Belgian-Canadian company Kinross Forrest Ltd.
The elections period was not the time for Nonetheless, the establishment of KCC required
introducing major structural reforms and the IMF Gécamines to yield its mining rights, whereas Kinross
noted that only minor and inadequate progress had been Forrest committed to investing $426 million to boost
made in this domain. Only key sectors such as mining mining, as well as $257 million more to keep operations
and energy were involved in major projects matching going for about 20 years. The government should get
the country’s huge resources. Corruption and about $2.2 billion in royalties and income tax from the
mismanagement of natural resources is still a big project, which is expected to generate 2 500 jobs (or
problem, however, and Transparency International’s 12 000 if sub-contractors are included) and support
2006 report ranked the DRC as the sixth most corrupt 240 000 people in the whole region. The contract does
of 163 countries. New investment and tax codes in involve handing over a key part of the country to the
the mining and forestry sectors should soon be approved private sector, and in June 2005 a parliamentary report

D.R. Congo
called for the renegotiation or cancellation of mining The DRC shares the Congo river basin with eight
contracts as about 30 joint ventures, drawn by big tax countries (Angola, Burundi, Cameroon, the Central
breaks, took over Gécamines’ richest concessions. The African Republic, Congo, Rwanda, Tanzania and
IMF asked the transitional government in August 2006 Zambia), and the Nile basin with nine (Burundi, Egypt,
to stop granting new mining licences pending Eritrea, Ethiopia, Kenya, Rwanda, Sudan, Tanzania
installation of a new government. A report by the and Uganda). It belongs to the Nile Basin Initiative,
international NGO Global Witness in 2006 criticised launched in 1999, and to a regional management
the illegal export of minerals across the Zambian border project called Pollution Control and Other Measures
as well as endemic corruption in Katanga’s copper and to Protect Biodiversity in Lake Tanganyika, along with
cobalt mines. Burundi, Tanzania and Zambia, which aims to institute
regional management for the lake that is ecologically
Many electricity projects are under way, including rational and sustainable.
a $262.3 million two-year rescue and recovery
programme launched by the national power company Access to drinking water and sanitation is difficult,
(Snel) in 2005. The country has an enormous and badly organised and coordinated. Decision making
hydroelectric potential of about 100 000 megawatts, and responsibility is hard to pin down because it is
44 000 of them at the Inga site alone, which has two spread between a dozen ministries and public bodies.
power-stations of total installed capacity of Urban water operations and distribution are the job of
1 774 megawatts, although Inga’s output was only the state-owned water company Regideso, which is
700 megawatts in 2006. Several projects are being facing technical-management, commercial and financial
considered to supply other (especially SADC) countries problems. In the countryside, the national rural water
218 from the Inga dam. The cost of building a third plant service, SNHR, has very few resources and its
at Inga (of 3 500-megawatt installed capacity) by 2010 institutional framework is inappropriate. As for the
has been put at $3.5 billion. The Great Inga project national sanitation programme, PNA, which handles
(13 500 megawatts) would cost $5.66 billion. If domestic and industrial waste and produces drinking
electricity is sold below the average rate of $0.035 water under Regideso and the ministry of environment,
kilowatt/hour for the region, the great Inga power it is practically non-existent. Water-borne sewage systems
station could generate largely sufficient profits to write are only available in the centre of the biggest towns, and
off the investment. their networks are in very bad condition (cracked,
destroyed or partly clogged). Wastewater flows untreated
Access to Drinking Water and Sanitation straight into the Congo river and its tributaries. The
government recognises the need to rebuild and
The DRC is one of the few countries in Africa decentralise the sector covering access to drinking water
with no desertification or water-scarcity problems. Its and sanitation and to focus on the neediest people.
extensive water resources include 30 or so rivers,
20 000 kilometres of river-banks and the 4 670- The fighting in recent years and the dilapidated state
kilometre long Congo river (which has the world’s of the existing infrastructure have reduced access to
second biggest estuary outflow – 40 000 m 3 per drinking water from 37 per cent in 1990 to 22 per cent
second). The country has the continent’s largest water in 2004 and to sanitation from 10 to 9 per cent for the
supply, with internal renewable water resources same period. The figures for sanitation need to be
averaging 900 km3 a year, nearly one-quarter of all qualified, as only 46 per cent of the Congolese have
Africa’s fresh water. The potential is huge and almost “hygienic” toilets, while the rest use uncovered latrines
entirely untapped. The DRC has been asked in recent or open pits, which are counted as sanitation. In view
years by its neighbours and by international of such extensive needs, the MDGs have been reduced
organisations to channel fresh water from the Congo to 49 per cent coverage for drinking water (36 per cent
basin to other countries. in the countryside and 65 per cent in towns and cities)

D.R. Congo
and to 45 per cent for sanitation. The total cost of are obsolete and only 30 per cent of sales points have
reaching these targets is put at $217 million, but success any at all, which means most customers simply pay flat
is extremely unlikely because of the very small current fees. At the height of the crisis in 2003, Regideso owed
investment and the vastness of the country, especially the government and other public bodies 85 months of
as aid donors would be the only source of money for arrears totalling more than $200 million. There is no
this sector, at least for the next five years. mechanism for recovering costs for sanitation.
People in rural areas seem to have been abandoned

many years ago and physical infrastructure there is Political Context and Human
crumbling, with 60 per cent of water facilities no longer Resources Development
working because of lack of maintenance, an inefficient
participatory approach and the difficulty of getting The various elections held in 2006 involved an
spare parts. Drinking-water access problems feed astronishing 282 registered political parties,
epidemics and water-borne diseases such as cholera, 50 000 polling stations opened up and 33 million
typhoid and dysentery. Women, as traditional water- ballots printed for a total cost estimated at more than
carriers, have a particularly heavy burden, as only 12 per $500 million, virtually all of it paid by the international
cent of rural households had direct access to drinking community. Eleven elections were held, including
water in 2004. Regional disparities are also very wide presidential, local and a one-round poll amongst
(only 3 per cent of people had access to drinking water 9 707 candidates for 500 seats in parliament. President
in the Banalia area of the Orientale province). Water Joseph Kabila won 58 per cent of the votes cast by
is not always drinkable because wells and other supply 25.6 million people, but his party and its allies only
sources are not covered or protected. It is mostly NGOs control 44.8 per cent of the seats in the national assembly. 219
and religious orders that share the responsibility for
supplying drinking water in the countryside. The The delicate transition period is now over. The
population has not managed to take charge of operating new national constitution has instituted a Third
and maintaining the facilities. Despite the great need, Republic and a strongly decentralised unitary state,
only four drilling enterprises are active in the DRC. and laid the foundations for a democratic regime by
The average cost of a hand pump is about $14 000 and balancing executive and legislative authority. The
$50 000 for an industrial one. president, elected by direct universal suffrage for five
years (with a right to one extra term), appoints a prime
In urban areas, 37 per cent of the population had minister who reflects the parliamentary majority. The
access to drinking water in 2004. Only 65 per cent of national assembly can censure the government and the
the inhabitants of the capital, Kinshasa, were connected president can dissolve the assembly. The judiciary is
to the network, while more than 2 million people independent and gender equality is written into the
depended on springs or wells, often polluted and drilled public institutions. Only 42 women, however, were
less than a metre deep near latrines. The situation is elected to parliament (8 per cent of its members). The
much worse in other towns and cities. Regideso’s country’s provinces, which will be increased from 11
laboratories are supposed to treat the water but the to 26 by 2009, have wide autonomy and levy directly
result is far from satisfactory due to frequent shortages 40 per cent of the tax revenue allocated to them in the
of purifying chemicals, seepages of contaminated water national budget. This point is one of the main concerns
into the distribution network and the collection of of international observers, as it supposes that local
water close to pollution sources. When Regideso’s taps officials should be responsible and a vigorous fight
run dry, water vendors take to the streets on bicycles against corruption.
offering 25-litre tins for CDF 100 ($0.25) each. In
contrast, Regideso’s price of around $0.65 per m3 is not Another political challenge will be to make progress
enough to cover production costs. The water metres with economic and legal issues now that they are

D.R. Congo
subject to parliamentary approval and will require The health situation remains dramatic. The health
political alliances to win majority approval. Central ministry’s reform and reconstruction strategy, backed
government authority will also have to be re-established by international aid donors, planned to spend $3
nationwide. The eastern provinces of Ituri, Nord-Kivu annually per inhabitant in 2005, far below the $15 to
and Sud-Kivu, which have twice been the seat of $26 recommended by the World Bank. About
rebellions that have plunged the DRC into war, are 20 million Congolese were under-nourished in 2005,
still the scene of ethnic tension and daily violence and 4 million died between 1998 and 2004 of common
against civilians despite a July 2006 amnesty for all curable diseases for lack of public services, infrastructure,
rebels laying down their weapons. The United Nations equipment and access to health care, especially in the
(UN) World Food Programme has announced countryside, where there was only one doctor for every
resumption of its airlifts to help more than 8 800 people 56 000 people in 2005. Infant mortality was 205 per
in these areas. The UN put the country’s humanitarian thousand live births in 2005 and more than 1 million
needs in 2007 at $686.5 million, and at the end of children had lost one or both parents to HIV/AIDS.
2006, there were still 1.6 million displaced persons. According to the UN, the steadily rising prevalence of
the disease was 4.5 per cent in 2005. At least 2.6 million
Despite its immense natural resources, the DRC is people are thought to be infected, including
still one of Africa’s poorest countries, with more than 120 000 children. Only about 5 000 people have access
three-quarters of its population living on less than one to retroviral treatment out of the more than
dollar a day in 2005 and fewer than 20 per cent with 400 000 who need it. The DRC is also one of the
regular access to water and electricity. The UN countries in the world most affected by cholera, with
Development Programme’s 2006 worldwide Human 65 000 cases declared to the World Health Organisation
220 Development Report ranked the country 167 out of between 2002 and 2004, including 3 200 deaths.
177, with annual per capita income (at purchasing
power parity) of $705, far behind neighbouring Congo In the field of education, the primary-school
(ranked 140) even though it, too, recently suffered enrolment rate fell from 54 per cent in 1990/91 to
from war. About 1 200 people, half of them children, 33 per cent in 2000/01 and was only 12 per cent at
die every day in the DRC from violence, disease or secondary level in 2000/01. According to Amnesty
malnutrition. The DRC is also thought to have more International, only 29 per cent of children complete
child soldiers than any other country in the world – primary school and 4.7 million (including 2.5 million
about 30 000 fighting or living with armed groups, some girls) do not go to school at all. The Catholic Church
12 500 of them girls. runs 80 per cent of primary and 60 per cent of secondary
schools, mainly because of the collapse of the state
On the gender front, Congolese women are education system. Teachers are still waiting for a pay
increasingly heads of large families as their men either rise granted after February 2004 talks between civil-
die of HIV/AIDS or in wars. According to surveys, as service unions and the government that set the
many as 90 per cent of them have informal or minimum monthly salary at $208 (a Congolese teacher
unstructured jobs, or a subsistence activity such as currently gets an average $67 a month). Higher
prostitution. Women’s rights are generally ignored on education is provided by four national universities
a daily basis and gender disparity in access to education, – two in Kinshasa, one in Lubumbashi and one in
health care and resources is large. In the eastern Kisangani – and by many colleges.
provinces they are subjected to violence, abuse and rape
by armed men.

Côte d’Ivoire
Yamoussoukro
key figures
Côte d’Ivoire
D ESPITE THE POLITICAL CRISIS THAT HAS been ongoing At the political level, 2006 was marked by the
since 2002, Côte d’Ivoire’s economy nonetheless collapse of UN resolution 1633, which meant that
registered growth estimated at 1.2 per cent in 2006, elections could not take place; it was also marked by
following a 1.8 per cent increase in 2005. In 2005 the voting of a new
Growth has been positive
growth was stimulated by the start of construction of resolution 1721 prolonging the
since 2005, thanks to new
new oil wells and the arrival of new telecommunication mandate of the president of the
oil wells and the arrival
operators on the market. The slowdown observed in republic for one year and
of new telecommunications
2006 resulted from delays in the start of reconstruction maintaining the prime minister
operators.
works, themselves incurred by delays in the peace in power. The year was equally
process and an ongoing climate of insecurity. marked by the toxic waste scandal, which led to the
resignation of the government for the first time in the
history of the country.
223
Source: National Statistics Office data.

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Côte d'Ivoire
Recent Economic Developments cocoa exchange (target/indicative purchase price margin

Bourse du Café et du Cacao - BCC) which was fixed at
In 2006, preliminary results for the first nine 400 CFA francs per kilogramme. The planters had
months of the year indicated a 2.4 per cent growth in called for 600 CFA francs per kilogramme, deeming
food production over the 2006/07 agricultural the price of 400 CFA francs low given the high taxes,
campaign against 2.8 per cent in 2005/06, owing to and furthermore called for a reduction of 100 CFA
favourable climactic conditions. With regard to francs per kilogramme of the DUS, which is currently
production of principal export crops, the cotton harvest 220 CFA francs per kilogramme.
increased by 11.3 per cent year on year, reaching
256 000 tonnes. Since the 2002 crisis, cotton It would appear that productivity in the coffee-
production, which is mostly based in the north of the cocoa sector has registered a general decrease, probably
country, has encountered considerable difficulties in linked both to ageing of the production fields and to
terms of supply (phytosanitary products and fuel), fewer phytosanitary treatments. Indeed, without a
financing and transport. Nevertheless, the corrective guaranteed minimum price and with producer prices
measures taken by producers to remedy the input so low, the latter are finding it difficult to apply effective
supply difficulties seem to have borne fruit. Coffee treatments, which also have an impact on the quality
production increased by 2.7 per cent to reach of the beans produced. To this end, since
115 000 tonnes, while cocoa production is estimated December 2006 the European Union has financed a
at 1 350 000 tonnes, 3.6 per cent more than in coffee-cocoa quality improvement programme worth
2005/06. The coffee-cocoa sector is comprised of 1.2 million CFA francs, to be executed by the Ministry
around 600 000 farms and provides a living, directly of Agriculture, with the help of the United Nations
224 or indirectly, for nearly 6 million people. Thanks to Industrial Development Organization (UNIDO). The
its geographical location (in the southern and south- programme’s aim is to prevent the contamination of
eastern part of the country) production suffered coffee and cocoa beans with Ochratoxin A, a toxin
comparatively less from the effects of the crisis. produced by micro fungi.
Cocoa production also benefited from the securing In the mining sector, activity was highly dynamic
of the transport corridors between production zones in 2005, due to the combined effect of a net expansion
and the ports, notably that of San Pedro. All the same, in oil extraction and an increase of gold and gas
the sector has been weakened by the crisis, in particular production. Following the activation of the Baobab
because of cocoa smuggling to Ghana and Burkina Faso, oilfield in August 2005, oil production has registered
and is suffering from the significant impact of strong growth (more than 83.2 per cent) for the fourth
institutional factors. Effectively, high taxes on cocoa consecutive year since 2002, with record production
exports tend to unbalance the distribution of profits, of 14.5 million barrels (almost 2 million tonnes). Gold
to the detriment of producers. The export tax (Droit production reached 1 637.7 kilogrammes, which
Unique de Sortie - DUS) and various other taxes are represents growth of 28.7 per cent over 2004, coinciding
estimated at more than 300 CFA francs per kilogramme with the implementation of security measures and the
for a factory purchase price of around 350 to 380 CFA relative calm observed in production zones. After having
francs per kilogramme. This level of taxation weighs increased by 10 per cent in 2005 to reach
equally on the price competitiveness of the sector. 1 742.3 million m3, gas production fell in 2006 as a
Against this background the national association of result of the silting up of wells. Because of its location
coffee and cocoa producers (Association Nationale des in the northern zone, no statistics regarding diamond
Producteurs de Café-cacao de Côte d’Ivoire - production exist.
ANAPROCI) that unites the majority of the
600 000 planters in the country, has denounced the Activity in the secondary sector, which had suffered
new purchase price for beans set by the coffee and more than the primary sector from the intensification

Côte d'Ivoire
Source: Authors’ estimates based on Ministry of Economy and Finance data.

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of political troubles at the end of 2004, recorded an The tertiary sector has suffered most from the
upturn in 2005, with the industrial production index economic impact of the political troubles. In 2005,
growing by 3.7 per cent compared to 3.2 per cent in almost all branches of the sector recorded a slowdown.
2004. The textile-shoes and wood sectors also suffered Overall maritime traffic (18.6 million tonnes) only
the effects of the political crisis, production again increased by 5 per cent in 2005 compared with 17.7 per
showing a strong decrease compared with 2004. Over cent in 2004. Air transport posted mediocre results, with
the first seven months of 2006, industrial production the overall number of passengers decreasing in 2005.
grew by 10.6 per cent, an evolution essentially due to Retail sales, measured by the sales index, remained
the strong increase in the index of the extraction stable (up 0.6 per cent) in 2005. Over the first nine
industries, with oil and gas production practically months of 2006, the retail sales index declined by 225
doubling. On the other hand, manufacturing industries 0.9 per cent due to the effect of the downturn in sales
declined by 0.9 per cent as a result of the 4.5 per cent of oil products, cars, motorcycles and parts. The
decrease in agro alimentary production and the 22 per distribution sector fell victim to the negative effects of
cent decrease in textile industry production, their sub- the toxic waste scandal.
indicators decreasing by 4.5 per cent and 22 per cent
respectively. The electricity, gas and water sectors for On the demand side, growth was fed by the
their part have fallen by 1.7 per cent. resumption of external demand and a light recovery in

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)
Gross capital formation 16.0 9.3 -4.3 2.1 6.4

Public 6.0 2.7 -10.0 5.0 10.0
Private 10.0 6.6 -2.0 1.0 5.0
Consumption 76.2 84.2 2.4 2.7 2.7

Public 10.0 13.9 4.0 3.5 4.1
Private 66.2 70.3 2.1 2.5 2.5

Exports 36.9 50.6 2.1 1.8 2.2
Imports -29.1 -44.1 3.3 2.5 3.5
Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
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Côte d'Ivoire
domestic consumption. It is estimated that final financing government priority actions related to a
consumption increased by 2.4 per cent in 2006. However, return to peace (demobilisation, disarmament and
investments decreased by 4.3 per cent, mainly due to the reinsertion, identification, organisation of elections).
fall in public investment (down 10.2 per cent) and, less State resources for 2006 are calculated at 1 965.3 billion
obviously, a slump in private investment (down 2.0 per CFA francs, of which 1 535.9 billion CFA francs are
cent). A light recovery is forecast for 2007 and 2008. from domestic resources, or 78 per cent of the total,
external resources representing the more modest amount
of 429.4 billion CFA francs. The main multilateral
Macroeconomic Policy and bilateral stakeholders financing programmes to
emerge from the crisis through scheduled donations,
Fiscal Policy calculated at 93.6 billion CFA francs, are the World
Bank, the International Monetary Fund (IMF), the
In 2005, the ongoing crisis continued to weaken UN Development Programme, the European Union,
the fiscal policy implemented by the Côte d’Ivoire France, Belgium and Denmark. State expenditure for
government. Revenues were 1 251.2 billion CFA francs, Côte d’Ivoire reached 1 965.3 billion CFA francs in
an increase of only 0.7 per cent compared to 2004, 2006, which represents an increase of 13 per cent,
which can be explained by the closure of numerous small principally due to efforts devoted to building peace.
and medium-sized enterprises (SME), which reduced Recurrent expenditure represents 1 091.5 billion CFA
the tax base and intensified the dependence of the francs, or 55.5 per cent of the total, and is allocated as
budget on coffee and cocoa taxes. Unfortunately, the follows: personnel (586.3 billion CFA francs),
coffee and cocoa sector has also experienced a number subscriptions/supplies (35 billion CFA francs) and
226 of difficulties, including smuggling of part of production operations (470.2 billion CFA francs). Debt servicing
to neighbouring countries, and malfunctions in the is assessed at 576.4 billion CFA francs, or more than
customs services, which have weighed on revenues. 29 per cent of the total budget (84 per cent of the
The revenue losses recorded on the DUS export tax have amount executed in 2005) covering all current
been offset by better performance by the Direction instalments.
Générale des Impôts (Inland Revenue), notably in tax-
collection on profits. Public spending, valued at Under the fiscal annex of the 2006 Finance Act, the
1 704.6 billion CFA francs in 2005, increased by 2.3 per reforms undertaken by the state since 2001 have been
cent over 2004, due to a more than 7.7 per cent rise continued. This authorises a certain number of measures,
in current expenditure, which accounted for 80 per cent of which the most important is the lowering of the
of total public spending in 2005. Interest payments on commercial tax rate, from 35 per cent to 27 per cent
public debt have decreased consistently since 2001. on industrial and commercial profits (bénéfices industriels
The fiscal deficit (commitment basis, including grants) et commerciaux - BIC) and on commercial agricultural
was valued at 138.8 billion CFA francs, or 1.7 per cent profits. The 25 per cent tax rate applicable to new
of GDP for 2005. In 2006, the situation was reversed; information technologies and to small and medium-sized
the Direction Générale des Douanes (Customs) posted industries (SMI) has been extended to all SMEs. This
higher revenue than expected, while the Direction measure is the result of negotiation between the private
Générale des Impôts (Inland Revenue) posted less. sector, notably the Côte d’Ivoire employers, and the
Minister of Economy and Finance. The following
Adopted over a year late by the Council of Ministers measures should also be noted: i) cancellation of some
on 14 June 2006, the 2006 budget rests on the tax arrears that were due on 31 December 2004;
assumption of an emergence from the crisis, with a ii) improvement of procedures and reimbursement of
prudent but positive macroeconomic forecast. It is VAT tax credits; and, iii) implementation of state
balanced at 1 965.3 billion CFA francs, an increase of control. The intended aim is to simplify the VAT
13.3 per cent compared with 2005, and is aimed at reimbursement procedure for corporations.

Côte d'Ivoire

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Total revenue and grants 19.1 17.6 18.5 18.2 17.9 17.7 17.6
Tax revenue 15.1 15.0 15.2 14.5 15.0 14.6 14.5
Grants 0.7 0.5 0.9 1.1 0.3 0.5 0.5
Consolidated expenditure 20.7 20.2 20.4 19.9 19.9 19.8 20.0

Interest 3.8 2.7 2.3 2.1 1.6 1.6 1.5
Primary balance 2.1 0.1 0.4 0.3 -0.4 -0.5 -0.8

Overall balance -1.6 -2.6 -1.8 -1.7 -2.0 -2.1 -2.3
Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
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The overall balance (commitment basis, excluding it remains attentive to the evolution of their economic
grants) is still changing, but is coming out positive at and financial situations, in particular the impact of oil
94.9 billion CFA francs at the end of June 2006 against prices on domestic prices, the conduct of agricultural
70 billion CFA francs during the same period in 2005. campaigns, trends in credits to the economy and
This improvement is due to an increase in total revenue liquidity. In 2005, the monetary authorities adopted
greater than that of spending and net loans. The rise a prudent monetary policy while creating favourable
in current expenditure was limited to 4 per cent. Capital conditions for financing to the economy. Net external 227
expenditure remained relatively weak because of credit progressed from 9.8 per cent compared with
financial constraints experienced by the country due 2004 to reach 704.5 billion CFA francs. Private sector
to lack of external financial support. According to the credits reached 1 189.3 billion CFA francs, an increase
Central Bank of West African States (BCEAO), public of 1.3 per cent. Money supply increased by 7.4 per cent
finances deteriorated in 2006. The financial operations to reach 2 081.2 billion CFA francs. On an annual basis,
of the state resulted in an overall deficit (commitment credits to the economy contracted by 3.7 billion CFA
basis, excluding grants) of 0.4 per cent of GDP, linked francs or 0.3 per cent. Money supply, up by 0.6 billion
to the rise in public administration expenditure on CFA francs, stabilised at 2 047.9 billion CFA francs at
stipends and salaries. Thus, in terms of macroeconomic the end of June 2006. Compared with June 2005,
convergence and of the first order criteria, the negative aggregate liquidity rose by 8.2 per cent.
budgetary balance (-0.4 per cent of GDP), fails to fulfil
the community norm. As regards inflation, responses for the first five months
of 2006 attest to a 2.4 per cent grow in the consumption
Financial Policy price index as against 4.1 per cent over the same period
in 2005, and over the entire year, inflation reached
Financial and credit policy are implemented at 2.5 per cent under the effect of a rise in the price of fish
regional level by the BCEAO, whose main mission is products, oil products and transport services.
to preserve parity between the franc CFA and the euro
and to control inflation. Monetary policy in the zone External Position
is thus rigorous, following the example of the European
Central Bank (ECB), with a tailored level of foreign The recovery of external trade was confirmed in
exchange reserves. The only difference is that in its 2005, even if still marked by the effects of the crisis.
monetary policy, the BCEAO takes into account the Generally, external trade increased by 3.3 per cent in
economic situation of its member countries. Effectively, volume, owing to the simultaneous growth of imports

Côte d'Ivoire
(2.5 per cent) and exports (3.9 per cent). In value, deficit by 6.6 billion CFA francs (approximately 0.3 per
imports rose by 18.5 per cent and exports by 8 per cent. cent of GDP), an evolution that can mainly be attributed
The deterioration of the trade balance observed since to the deterioration of the trade balance. Raw cocoa
2002 was confirmed in 2005, when it reached 14.5 per exports have been decreasing regularly since 2002 (a
cent of GDP. This downturn apparently continued cumulative decrease of 30 per cent in four years): they
with a trade balance of 12.9 per cent of GDP in 2006 accounted for 27 per cent of exports in 2005 as against
because of a drop in cocoa exports and a rise in imports 40 per cent in 2002. At the end of November 2006,
of equipment goods. The weakness of the international 200 000 tonnes of cocoa were ready for export, as
cocoa markets and the rise in imports could not be against 300 000 tonnes for the same period in 2005,
totally offset by the increase in the oil surplus resulting which constitutes a significant loss to recoup, as much
from the strong rise in the international price of energy. for exporters as for the state, which loses substantial tax
The current account balance was for the first time in revenue in this way, notably on the DUS export tax.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 13.1 18.5 16.6 14.5 12.9 13.5 12.9

Services -7.1 -8.1 -8.2 -7.9 -8.3 -8.1 -8.2
Factor income -5.5 -4.8 -4.2 -4.0 -3.9 -6.0 -5.8
Current transfers -3.1 -3.5 -3.0 -2.8 -2.8 -1.0 -1.0
228 Current account balance -2.7 2.0 1.2 -0.3 -2.1 -1.6 -2.0
Source: Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
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Although the country has exported oil since 2002, and Monetary Union (WAEMU) and of the Economic
the increase in imports was primarily the result of the Community of West African States (ECOWAS). The
rise in oil prices. Imports went from 576.5 billion CFA resumption of financial assistance from the Bretton
francs in 2004 to 867.8 billion CFA francs in 2005. Woods Institutions and the restarting of the debt
Imports of equipment goods (spare parts or new reduction process within the framework of the Heavily
equipment such as machines, engines and utility Indebted Poor Countries (HIPC) Initiative, from which
vehicles) reached 1 077.4 billion CFA francs in 2005, Côte d’Ivoire began benefiting in 1998, are urgent
as against 838.9 billion CFA francs in 2004, owing to priorities. They are still nonetheless secondary to the
the positive development of most industrial branches. normalisation of the political situation. In 2005 and
Furthermore, imports of consumables grew overall. 2006, the government instigated discussions with the IMF
Purchases of medicines, which are third in rank in for a post-conflict aid programme, which became active
imports after oil and rice, grew by 14 per cent. In 2006 on signature of a letter of intent by the prime minister.
exports showed a stronger performance linked to the In tandem with the World Bank, $100 million of support
rise in exports of oil products but imports increased as for the National Disarmament, Demobilisation and
well. Thus the current account balance, excluding Reintegration Plan (PNDDR) was negotiated in June
transfers, showed a surplus equivalent to 0.7 per cent 2006. These programmes nonetheless remain linked to
of GDP, as against 2.5 per cent in 2005. the discharge of arrears owed to the World Bank, which
reached a total of 200 billion CFA francs.
In terms of international agreements, Côte d’Ivoire
is a member of the Conseil de l’Entente between Benin, The last reduction of its public debt from which
Burkina Faso and Niger, of the West African Economic Côte d’Ivoire was able to benefit was agreed in April

Côte d'Ivoire

Source: IMF. 229

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2002. This relief, which corresponded with a preliminary francs. Outstanding external debt is broken down
agreement to the strengthened HIPC Initiative, marked primarily between multilateral creditors (1 593.8 billion
the resumption of financial co-operation between Côte CFA francs), members of the Paris Club (1 991.5 billion
d’Ivoire and its foreign partners. It translated into debt CFA francs), and the London Club (1 123.5 billion
cancellation of $911 million and the reduction of debt CFA francs).
servicing from $2.26 billion to $750 million between
1 April 2002 (the date of the agreement with the Paris
Club creditors) and 31 December 2004. The relief Structural Issues
granted by foreign creditors assumed that Côte d’Ivoire
would respect the terms of the three-year agreement Recent Developments
concluded with the IMF under the Poverty Reduction
and Growth Facility (PRGF), and it would have allowed The unfavourable situation created by the socio-
further relief once the HIPC Initiative decision point political crisis does not prevent the government from
had been reached. This process was interrupted however continuing to take measures to lighten the negative
by the crisis. The overall public debt of Côte d’Ivoire effects of the crisis. Notable advances took place in
was estimated at 5 524.7 billion CFA francs at end 2005, 2005.
which is 64.1 per cent of GDP and 128.8 per cent of
goods and services exports. This amount includes At public administration level, the national steering
4 746.3 billion CFA francs of foreign debt (55.1 per committee for the reorganisation of the administration
cent of GDP and 109.9 per cent of goods and services (Comité National de Pilotage du Redéploiement de
exports) and 778.4 billion CFA francs of domestic l’Administration - CNPRA) implemented a pilot project
debt (9 per cent of GDP). Compared with 2004, there to return state agents to the western region (3 756 civil
has been a 2 per cent reduction of 97.4 billion CFA servants in total) and to rehabilitate public buildings,

Côte d'Ivoire
roads and water services, with the aim of facilitating withdrawal of the authorisation of the Citibank NA-
the return of populations to the occupied zones. After Abidjan branch. The financial institutions are
execution of this pilot phase in the west, the CNPRA characterised by activity mainly oriented towards lease-
then carried out a census of displaced civil servants. purchasing of property and goods. The Caisse Nationale
Around 15 000 agents were waiting to reclaim their des Caisses d’Epargne (CNCE), formerly the Caisse
posts. The crisis strongly deteriorated transport and d’Epargne et des Chèques Postaux (CECP), was set up
administrative infrastructures. as a banking establishment by decree n° 2004-565 of
14 October 2004, bringing an increase in capital and
In the agricultural sector, measures were taken in transforming the CNCE into a bank. This new structure
the coffee-cocoa sector in order to reduce indirect taxes, has delayed implementing the reforms recommended
brought from 54.26 CFA francs per kilogramme to under the framework of the restructuring, which has
53.15 CFA francs per kilogramme. These measures brought about a new accumulation of arrears with the
followed the rationale of decree n° 420 of 21 October state. With the perspective of absorbing these, through
2005 fixing of the level of taxes and dues for 2005/06 decree n°2005-306 of 29 September 2005 for the
agricultural campaign. In addition, the authorities financial restructuring of CNCE, the government
strengthened the monitoring and control of financial accepted the discharge of the cumulative losses covering
movements by putting in place a reliable information the 1999-2003 period and the capital conversion of a
system for levies and allocations. In the medium term, part owed to the Treasury. The lifting of these constraints
the steering committee report must be published so that enabled the transformation of CNCE into a bank.
the reforms can be strengthened and the second phase
of the financial audit of the sector must be finalised. Following devaluation of the CFA franc in 1994,
230 The first phase of audit took place in July 2003. a labour consultation commission was put in place in
Côte d’Ivoire in order to consider a new standard
In the energy sector, the leasing contract with the salary grill for the different sectors of the economy. The
electricity company, Compagnie Ivoirienne d’Electricité work of this commission resulted in the signing of
(CIE) was extended in September 2005. This extension agreements between the state, the three central unions
was accompanied however by major provisions and Côte d’Ivoire employers, and in an official salaries
including, notably: (i) regular monitoring of contract scale for Côte d’Ivoire. This document establishes a
execution; (ii) setting up a fund equipped with a minimum professional wage (SMIG) and a minimum
management committee; and, (iii) the possibility or agricultural wage (SMAG) set at: 211 CFA francs per
revising the contract every five years. These provisions, hour, or 36 607 CFA francs per month for industry;
which enable the institutional framework to be at 333 CFA francs per day for the agricultural sector;
improved, will contribute to stabilising the financial and, at 581 CFA francs per day for the forestry sector.
situation of the sector (given the implementation of Executive salaries are fixed by negotiation between
recommendations from the tariff study of the sector). employer and employee.
It should however be noted that the electricity sector
is widely stricken and there are not inconsiderable risks The telecommunications sector has developed
of disturbance in the medium term, despite the increase appreciably despite the crisis. Introduced in Côte
in the level of rural electrification. d’Ivoire in 1996, GSM (global system for mobile)
cellular mobile telephony is today operated by three
In 2005, the banking system was comprised of licensed enterprises: Orange Côte d’Ivoire, MTN-Côte
19 credit establishments, of which 17 were banks (16 d’Ivoire and Atlantique Télécom, which launched its
in 2004) and 2 were financial establishments. These activities in June 2006 under the brand name of
developments were due to authorisations granted to the “Moov”. The US enterprise, Comstar Cellular, which
Banque Régionale de Solidarité Côte d’Ivoire (BRS-Côte also held an operating license, ceased activity three
d’Ivoire) and to Citibank Côte d’Ivoire, and to the years previously. The mobile telephony market is

Côte d'Ivoire
constantly moving, with operators competing in framework, SODECI is responsible for routine
ingenuity to offer the best solutions to their clients at operation of the service in terms of treatment,
the most competitive prices. However, Orange Côte distribution and billing of potable water in the country’s
d’Ivoire, a subsidiary of the France Télécom group, is towns and cities. The state of Côte d’Ivoire however,
predominant in the market by number of subscribers. which owns the installations, decides on which
Where geographical coverage is concerned, the most investments to make to extend the network. To this end,
recent arrival (Moov) is the least well represented the water management department, the Direction de
nationally, while Orange Côte d’Ivoire and MTN Côte l’Eau, which became the Direction de l’Hydraulique
d’Ivoire cover more than half the country. Around Humaine (DHH) (Department for Potable Water),
seven companies provide Internet access in Côte d’Ivoire. represents the government in the management and
This relatively young market is rapidly developing operation of the conceded service. The DHH, which
thanks to the lowering of connection charges. Clients reports to the Ministry of Economic Infrastructure, is
are mostly from the professional sector, as access costs in charge of monitoring the exploitation of state
are still high for the average individual. These latter prefer holdings, that is to say, the creation of national policy
Internet cafés that offer cheaper rates, with one hour for water resource programmes and implementing
of connection often costing just 250 CFA francs. research, assessment, protection and mobilisation
According to the figures published by the Côte d’Ivoire programmes for potable water consumption. It is also
telecommunications agency, in terms of subscriber charged with organising and monitoring construction
numbers the market is dominated by Aviso, a subsidiary and maintenance of facilities related to the production
of Côte d’Ivoire Télécom, followed by Africa Online and public distribution of potable water.
and Afnet. Internet service suppliers offer solutions
graded according to client category and their needs. In The 1987 institutional reform also structured village 231
2003, Côte d’Ivoire Télécom launched an ADSL water resources. This made the DHH the main actor in
product, which enables the high-speed transmission of village water resources and thus gave it control of the
multimedia data via the telephone network. national policy for both urban and village potable water.
However, in rural areas, follow-up of execution of projects
Access to Potable Water and Sanitation is undertaken by the Direction Nationale de l’Hydraulique
Villageoise (DNHV) (national department of rural water
In Côte d’Ivoire, the population is supplied with systems). Provision of potable water to rural communities
potable water in three ways: urban water systems, village was realised through the Programme National
water systems and improved village water systems. d’Hydraulique Villageoise (PNHV) (national programme
for rural water systems) that was set up in 1973 in order
In urban areas, the institutional arrangement for to exploit underground water resources via wells and
managing potable water services centres on a private boreholes to supply potable water to the rural population.
operator, SODECI, (Société de Distribution d’Eau de However, difficulties appeared in the strategy to supply
Côte d’Ivoire), which operates the national potable rural groups, notably, the high cost of operations and
water supply system under a 20-year leasing contract the lack of adequate equipment in semi-modernised
(1987-2007). With the support of the World Bank, in villages, as well as the virtual absence of technical assistance
1987 the government of Côte d’Ivoire introduced a related to the completion of works. To remedy these
reform formalised through several decrees, notably problems, an improved village water system (système
decree n°87-1471 of 17 December 1987, which d’hydraulique villageoise améliorée - HVA) was introduced
approved the concession agreement signed between in 1990. In rural areas, the population is responsible for
the state and SODECI for the public water distribution its exploitation and maintenance within the framework
service. SODECI is a subsidiary of the French urban of the DHH. To benefit from the allocation and
and rural planning enterprise, Saur (Société realisation of an HVA system, the locality must fulfil
d’Aménagement Urbain et Rural). Within this certain criteria, notably: i) have a population of between

Côte d'Ivoire
1 000 and 4 000 inhabitants; ii) agree to contribute At village water resource level, efforts to improve
10 per cent to financing; iii) be divided into plots and water supply to rural areas have encountered two major
have undergone electrification; iv) have a borehole problems. Effectively, 37 per cent of infrastructure
capacity of more than 3 m3/hour; and, v) establish a requirements have yet to be met, which represents a
management committee. need for almost 8 000 further water supply points. As
regards maintenance, many population centres lack
To finance the requirements of this sector and potable water because of a high breakdown rate. This
contribute to new investments, the state has put in stands at 60 per cent over the whole country and is
place a water rates system divided in five consumption caused by the socio-political crisis in Côte d’Ivoire.
categories: social (0-18 m3/quarter), domestic (19-
90 m3/quarter), normal (91-300 m3/quarter), industrial In terms of the improved village water system
(more than 300 m3/quarter) and administrative (special (HVA), groups are provided with potable water via
rate). The water rate comprises three elements: i) the standpipes. Since 1990, when they were established,
farmer’s part (remuneration of the concession holder) 118 localities have been equipped with a total of
allowing operation costs to be met; ii) a surcharge for 1 470 standpipes. The cost of extending coverage to
the water development fund (Fonds de Développement all these localities is estimated at around 110 billion
de l’Eau - FDE) to finance the extension and renewal CFA francs.
works authorised by the DHH; and finally, iii) a special
water tax (taxe spéciale de l’eau - TSE) given to the The political crisis has had an effect on the entire
national water fund (Fonds National de l’Eau - FNE) Côte d’Ivoire water sector. The European Union has
to service state debt from the sector. The price scale, remained one of the chief supporters for resolving
232 which is identical throughout Côte d’Ivoire, varies water issues during the crisis period. It had already
according to consumption level. The social, domestic agreed to an emergency programme, named PUR 1,
and normal consumption bands are respectively billed which has been fully carried out. A second emergency
at 184 CFA francs, 286 CFA francs and 464 CFA programme (PUR 2) is currently being carried out.
francs per m3. For the industrial band, the cost per m3 PUR 1 consisted, among other things, of buying
of water is fixed at 532 CFA francs and a single rate of treatment products to sterilise water and of creating
360 CFA francs is applied for the administration. boreholes in the north. PUR 2 is concerned with the
Subsidised connections accounted for more than sinking of boreholes in Korhogo, cleaning reservoirs,
3 billion CFA francs before 2001. In 2002, the replacing water channels in this city and, carrying out
government decided to restrict the criteria for attribution works in Man and Bouake, etc. The chaotic shantytowns
of subsidised connections in order to limit the envelope that have sprung up in Abidjan, due to population
to 1 billion CFA francs. Over the 1997-2002 period, displacement following the crisis, are threatening the
subsidised connections accounted for nearly 15 billion water table that supplies the capital with potable water.
CFA francs financed by the FDE. This is also the case for the lagoon that serves as a
reservoir. Frequent dredging of the banks is reducing
With regard to urban water resources, more than the thickness of the protective layer against
half of the urban population is connected to the potable contamination by saltwater.
water system, either via individual connections, or via
standpipes. This system allows the production of After the initial large works to improve sanitation
110 million m3 of potable water per year and ensures and drainage in Abidjan in 1975, the economic capital
a coverage rate of 75 per cent. The rest of the population was equipped with at least 1 040 kilometres of water
consumes water from private wells, illegal water-sellers, drainage network. This allowed the construction of
rivers or other non-hygienic sources of water. The infrastructure necessary for equipping constructible
coverage rate of potable water for Abidjan is 82 per cent land and the curbing of flooding problems. Since then
and 75 per cent nationally. however, nothing further has been done. Consequently,

Côte d’Ivoire
less than 49 per cent of households have access to regrouping will be carried out around three delegations
appropriate sanitary installations. This is even more of water regions taking on the three main geographic
serious throughout the country. Only seven cities water reservoirs (Comoé-Agneby, Bandama-Boubo,
(Bouake, Yamoussoukro, Daoukro, Daloa, Gagnoa Cavally-Sassandra).
and San Pedro) have a real sanitation plan. That said,
they are collapsing under the weight of problems with The programme for the treatment and disposal of
waste- and rainwater disposal. wastewater remains crucial and must be implemented
rapidly, at least in the industrial sector, which dumps
The national sanitation policy was revised in 1973 effluent in the lagoon and sea all too often. For village
to focus on several major guidelines. From 1983 to water systems, the fund for development and the
1995, taking these guidelines into account the promotion of coffee-cocoa activity (Fonds de
government prepared and executed a programme to Développement et de Promotion des Activités du Café-
improve environmental protection and to manage Cacao - FDPCC) and the drilling company Forexi
investments in the sanitation sector rationally. Further signed an agreement at the beginning of 2004 to
to this, in August 1999 SODECI obtained a 12-year construct 2 000 wells in 48 country regions. Valued
concession contract (1999-2011) to manage covered at EUR 15 million, the follow-up of work on this
waste- and rainwater channels, theoretically disposed project is carried out in concert with the DNHV and
of in a sea outfall passing through the Vridi canal. This the FDPCC.
service is billed to the client in the form of a fee payment,
the amount charged depending on potable water Many projects are financed by international
consumption. To these institutions must be added the funding agencies, notably the African Development
national technical research and development department Bank (ADB), the Agence Française de Développement 233
(Bureau National d’Etudes Techniques et de Développement (AFD), the West African Development Bank and
- BNETD), a state company under the president of the KFW (Kreditanstalt für Wiederaufbau). The political
republic, which ensures the conception, monitoring and situation of the last few years has prevented the state
management of outfitting and construction projects. from carrying out water sector programmes. The
Two of its departments are linked to the water sector, sponsors of these programmes have suspended all
natural resources and the environment, and agriculture. disbursements and the resumption of financing is
It is this company that issues authorisations to the strongly dependent on the normalisation of socio-
research departments. political life in the country.
Human water resource needs are estimated at almost As regards sanitation, a rigorous awareness-raising
700 billion CFA francs for the 2002-25 period. Despite and financing programme that is monitored by the
investments already agreed by the state, the requirements authorities must be put in place. Financial resources,
to ensure the supply of potable water to around 95 per notably the specific surcharges on water consumption
cent of the population by 2025 (Millennium and the sanitation tax, that were initially allocated to
Development Goal) remain significant. the financing of sanitation and drainage, are not
available, since they are not transferred to the FNE
The government has taken measures to avoid the (the organism created to monitor works) when they are
pollution of fresh water resources in the region of the collected (for example the drainage tax included in
capital of Abidjan by outlining a protective border of land tax). The leasing contract with SODECI will no
the water table and by subjecting every borehole to longer be sufficient to meet demand. The state is seeking
authorisation. To ensure efficient management of water funding of 200 billion CFA francs (of which 30 billion
resources, an institutional reform must be put in place CFA francs alone will be for the city of Abidjan) to
through the creation of reservoir agencies that will finance the sanitation and drainage of the main cities
manage water resources by catchment area. This of the country.

Côte d’Ivoire
Political Context and Human between President Gbagbo and the rebel chief,
Resources Development Guillaume Soro. This agreement sets out a detailed set
of measures that should lead to political stability and,
After a plethora of summits, meetings and as a result, appears to represent a concrete first step
mediation at national and international level to find towards the resolution of the crisis.
a solution to the crisis in Côte d’Ivoire, the country
has still not managed to re-establish peace. The “neither The activities of the independent electoral
war nor peace” situation experienced by the population commission have begun and new ones from the
of Côte d’Ivoire remains frozen and the country is PNDDR and the CNPRA are in operation. The IMF,
still divided in two, with the north remaining under following a mission conducted between 2-16 May
the control of rebel forces, as well as a strong presence 2006, gave its agreement in principle to support the
of neutral forces, of which 3 500 are French soldiers efforts of Côte d’Ivoire to re-establish stable economic
and 7 000 are UN troops. The UN Security Council growth and improve the quality of life of the population.
has extended, beyond the initial one-year period, the However, there still exist many disturbances that disrupt
mandate for President Laurent Gbagbo, and Prime social life and that further destabilise the economy.
Minister Charles Konan Banny. The resolution 1721
which frames this new transition in Côte d’Ivoire At the end of 2005, the prevalence of HIV/AIDS
reprises the decision of the Peace and Security Council among adults (15-49 years) was 7.1 per cent, and
of the African Union on its principal points, one of 750 000 people of all ages were living with HIV in 2005.
which is the allocation of expanded powers to the According to a report produced by the ministry of the
prime minister. Among other things it involves fight against AIDS, the national infection rate went from
234 decision-making by decree or decree-acts in the council 7 per cent in 1991 to 4.7 per cent in 2006. Despite
of ministers or government, and authority over defence the current crisis, the US has scheduled to provide an
and security forces. The prime minister must additional 10 billion CFA francs for the 2006/07
implement all the elements of the roadmap established budget for the fight against HIV/AIDS in Côte d’Ivoire.
by the International Working Group working towards A US emergency plan of 12 billion CFA francs in 2004
the organisation of free and transparent elections, and 22 billion CFA francs in 2005 has already been
which must take place by 31 October 2007 at the deployed to prevent new infections. This new plan will
latest. However, the effectiveness of this new resolution contribute to the prevention of 200 000 infections by
on the ground remains doubtful, and other questions treating 77 000 Côte d’Ivoire inhabitants already
also remain, arising from many unresolved points infected with the illness. Infection rates in the scholastic
between the constitution and this last resolution. population are estimated at 4 per cent according to this
same report. The Côte d’Ivoire government has made
This last United Nations resolution was much AIDS in the scholastic population a new priority. Faced
criticised, above all by the president of the republic with the risks of a proliferation of infections and
who proposed a direct dialogue with the rebels, given numerous cases of unwanted pregnancies in the school
that according to him, UN resolutions had not resolved population, the government has decided to strengthen
the problems of Côte d’Ivoire and could not resolve its teaching programme for combating AIDS in schools
them. Recent diplomatic developments (African Union throughout the country. Thus, a new programme
Summit in Addis Ababa in January 2007) have comprised of preventative education modules based
demonstrated that the international community is on strengthening knowledge and psychosocial skills
ready to support this direct dialogue even if its outline about AIDS has been adopted and will be implemented
is not very clear. On 4 March 2007, under the mediation during the 2006/07school year.
of the President of Burkina Faso, Blaise Compaoré,
this willingness of both parties to engage in a dialogue The budget allocated to health has remained
resulted in the signature of the Ouagadougou Agreement relatively weak. On domestic financing, health

Côte d’Ivoire
expenditure represented 6.2 per cent of the total budget the part of the budget dedicated to education is growing.
in 2004, 6.1 per cent in 2005 and 9.2 per cent at the On domestic financing, education spending as a
end of September 2006. That said, health represented proportion of the total budget grew from 29 per cent
0.9 per cent of GDP in 2004, 0.8 per cent in 2005 and in 2004 to 32 per cent in 2005, to reach 51.6 per cent
0.4 per cent at the end of September 2006. However, in September 2006.
235

.
Egypt
Cairo
key figures
Egypt
E GYPT HAS GREATLY BENEFITED FROM reforms to of GDP. However, the country’s leaders do not want
open up and liberalise its economy in recent years and to break the current virtuous circle of growth by
has quickly become a dynamic market economy, led drastically cutting government spending, especially
by the private sector and well integrated into the global basic food and energy subsidies for consumers. This
economy. It has chalked up excellent real GDP growth might increase poverty at a time
Foreign and domestic
rates – 6.8 per cent in 2005/061 – with over 6.6 per when more than 10 per cent of
investment rates exploded
cent predicted for the next few years. This performance the workforce is unemployed and
in 2006 and the economy
has been accompanied by record foreign direct pockets of great poverty exist all
performed very well in
investment (FDI) – more than $6 billion – and over the country, especially in
spite of rising public debt,
improvement in most economic and social indicators. Upper Egypt. Moreover, inequality
a high fiscal deficit and
and poverty offer fertile ground
political uncertainty.
The only macroeconomic indicators that need to for Islamic fundamentalists.
be substantially improved concern the budget deficit, Although commerce and finance have been greatly
which was 9.3 per cent of GDP in 2005/06, and the liberalised, the political situation has hardened as the
level of public debt, which is more than 100 per cent authorities have rejected demands to allow new political
239
■ Egypt - GDP Per Capita (PPP in US $) ■ North Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Egypt - Real GDP Growth (%)
8 6000
7
5000
4000
5
4 3000
3
2000
1000
1
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/756538863046
1. Egypt’s fiscal year runs from 1 July to 30 June the following year.

Egypt
parties and arrested many members of the consumers bought 95 per cent of agricultural output in
fundamentalist Muslim Brotherhood. 2005/06. The country is still a major importer, mainly
of cereals (about 7 million tonnes a year). It is also trying
The private sector’s share in the domestic economy to modernise its cotton mills to maintain its share of the
is growing steadily as the business climate improves and world market and has set up a committee to deal with
the privatisation programme resumes. Banking has manufacturing and marketing problems. Despite these
been transformed over the past three years, with new efforts, cotton production fell 5.4 per cent by volume
laws, state withdrawal from the sector, restructuring and in 2005/06, continuing a decline of several years.
recent privatisations. Financial intermediaries can now
support the private sector and economic growth. At the Mining expanded 20.8 per cent in 2005/06, but
international level, Egypt has embarked on major there were great disparities within the sector. While oil
economic and trade partnerships with China, Russia output shrank 2.1 per cent, natural gas production is
and Turkey and strengthened those with its older booming (+50.2 per cent real growth), and further gas
partners. If the country can meet the key challenges of discoveries were made in early 2007. Oil reserves at the
reducing poverty, unemployment and the budget deficit, end of 2005 were 3.7 billion barrels and production
it should be able to take full advantage of its potential. 579 000 barrels a day (compared with 922 000 in
1996). About two-thirds of output is refined in Egypt’s
nine refineries, which have a total daily capacity of
Recent Economic Developments 726 250 barrels. Natural gas resources are huge, with
proven reserves estimated at 66 700 billion cubic feet
Real GDP grew a robust 6.8 per cent in 2005/06 at the end of 2005, plus potential reserves of 40 000
240 (4.9 per cent in 2004/05), mostly due to good to 60 000 billion. The country has exported gas in
performances by natural gas, construction, the Suez liquefied form since 2003 and continues to expand its
Canal and communications, and to major structural markets with the building of a gas pipeline to Jordan
reforms and soaring domestic and foreign investment. and Syria, and also to Russia, Turkey, Israel and Europe.
Growth is forecast as 6.6 per cent in 2006/07 and To reduce pollution, the government is encouraging
6.7 per cent in 2007/08 – steady progress that, if it lasts, local use of natural gas not only for motor vehicles but
promises to reduce poverty. also for electricity generation, by converting power
plants to use gas turbines.
Agriculture grew 3.2 per cent by volume in 2005/06
(3.3 per cent in 2004/05), and its share of GDP was steady Manufacturing grew 5.8 per cent in real terms in
at about 15 per cent. Irrigated farming did well and is 2005/06 (4.4 per cent in 2004/05) and largely comprises
increasingly focusing on high-value products such as small units of fewer than 15 employees. In industry, a
horticulture, whose fruit and flowers are delivered fresh broader sector, the share of the private sector increased
daily to the nearby European market. Domestic to 86 per cent in 2005/06 with the privatisation of large
Government Services and other services Agriculture
16.7% 14.9%
Electricity and Water
1.9%
Trade, Finance and Insurance 21.9%

30.4% Industry, Petroleum and Mining
10.3% 4%
Transportation, Communication and Suez Canal
Construction
http://dx.doi.org/10.1787/507334376630

Egypt
public firms. Egyptian industry turns out a wide range operations in the Middle East, more than 7 per cent
of items: pharmaceutical, ceramic and metal products of the world’s maritime traffic passed through
all increased their share in GDP, but the best performances the Suez Canal in 2005/06, earning Egypt
in 2005/06 were by textiles and agro-food. The textiles $3.56 billion – $274 million more than in 2004/05.
sector made up for market losses caused by the end of Its value added at constant prices grew 16 per cent
the Multifibre Arrangement by producing textiles and in 2004/05 and 9.4 per cent in 2005/06. Canal
ready-to-wear items in the country’s seven Qualifying revenues have nearly doubled since 2001 and should
Industrial Zones (QIZ). Construction did very well, continue rising in 2006/07, notably because of the
growing 14 per cent in real terms, with its GDP share March 2006 increase of 3 per cent in charges for all
rising to 5 per cent (up from 3.8 per cent in 2004/05). ships passing through.
More than 84 per cent of the 2005/06 cement production
of 35.8 million tonnes was sold domestically. Telecommunications is also booming, with 10.3 per
cent growth in 2005/06 (9.4 per cent the previous
The services sector accounted for about 48 per fiscal year). After growing 21.1 per cent by volume in
cent of GDP in 2005/06. As a result of the growing 2004/05, tourism was up only 4.3 per cent in 2005/06,
dependence of the West on Middle Eastern oil, the mainly because of an attack – the third in 18
expansion of China’s and India’s trade, and military months – on a Red Sea tourist site in April 2006.

1997/98 2004/05 2005/06(e) 2006/07(p) 2007/08(p)

(current prices) 241
Public 5.4 4.5 -26.1 12.0 10.0
Private 16.1 13.4 30.0 18.0 15.0
Consumption 88.0 84.3 9.3 5.8 7.2

Public 11.3 12.7 5.7 4.7 5.0
Private 76.7 71.6 10.0 6.0 7.6

Exports 16.2 30.3 13.1 5.0 2.5
Imports -25.7 -32.6 17.2 11.0 11.8
Source: Central Bank data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/611681120765
Domestic investment is expected to grow a record investment and consumption) should pull growth
15.8 per cent in 2005/06 (followed by 17 and 14.2 per upwards in 2006/07 and 2007/08. Exports should
cent in the two subsequent years) and is increasingly grow more slowly than imports, which are expected to
provided by the private sector, which promises strong rise sharply to meet strong domestic demand.
economic growth. Private investment accounted for
58 per cent of total investment on average between 2000
and 2005 and topped 66 per cent in 2005/06. The GDP Macroeconomic Policy
share of investment was 18.7 per cent in 2005/06 and
that of consumption 83.7 per cent. The tertiary sector Fiscal Policy
(transport and communications) was the main target
of domestic investment (with 18 per cent of the total), The 2005/06 budget was the first one complying
followed by the social sector, manufacturing, and oil with the new Government Finance Statistics (GFS)
and gas (each 15 per cent). Domestic demand (both budget classification system of the International

Egypt
Monetary Fund (IMF), which treats subsidies explicitly pushed up spending on subsidies and social benefits
since they are a very big part of government spending. from 29.3 billion Egyptian pounds (EGP) in 2004/05
This makes it hard to see budget trends, as the budget to 50 billion in 2005/06 and an expected 58 billion in
was recalculated from 2002/03 under the new system. 2006/07 (more than 20 per cent of all government
The GFS system increases the deficit: for example, the spending). Energy subsidies were 40 billion EGP in
2002/03 deficit was 6.1 per cent of GDP under the old 2005/06 ($6.7 billion). One solution being considered
system and 9.1 per cent under the new. In 2005/06, is to make subsidies more effective by better targeting
the deficit amounted to 9.3 per cent of GDP (6.2 per the poorest people, notably by issuing a smartcard to
cent under the old system), compared with 9.4 per the poorest families. The reform would be introduced
cent (6 per cent) the previous year. It is now expected gradually, over four to five years. The price of petrol
to fall steadily, to 8.6 per cent in 2006/07, 7.7 per cent was put up recently from 1 EGP to 1.30 EGP per litre
in 2007/08 and eventually to 4 per cent – still a high to reduce the cost of these subsidies to the national
figure – in 2010/11. budget, but government spending will still be strained
by the burden of servicing the national debt, given the
The challenge facing the government is to cut country’s high level of domestic debt (102 per cent of
spending to reduce the budget deficit and public debt GDP at the end of the 2005/06 fiscal year). Pay rises
without slowing economic growth. Over the 2002-06 promised to civil servants during the presidential and
period, public expenditure accounted for a very big share parliamentary election campaigns will also weigh on
of GDP (over 30 per cent). Soaring oil prices have the budget.

242
1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue 12.9 10.4 10.8 10.8 12.8 13.0 13.4
Oil revenue 2.4 2.9 3.0 3.3 0.4 0.4 0.4
Grants 2.8 0.8 1.0 0.5 0.5 0.4 0.4
Interest 5.2 6.2 6.3 6.1 6.9 6.4 6.0
Primary balance 4.2 -2.9 -2.7 -3.3 -2.4 -2.2 -1.7

Overall balance -1.0 -9.1 -9.1 -9.4 -9.3 -8.6 -7.7
http://dx.doi.org/10.1787/447428415487
On the revenue side, customs duties and tax rates tax and customs collection and the vigour of the private
have been significantly reduced. The average customs sector also contributed to this performance. Total revenue
tariff was cut from 14.6 to 9.1 per cent in 2004, and increased to 21.1 per cent of GDP in 2005/06 (20.6 per
the highest income tax rate was cut by half to 20 per cent in 2004/05) and should continue to rise in 2006/07
cent in the 2005/06 budget. In the same year, company and 2007/08, helping to ease the budget deficit.
tax was sharply reduced and harmonised at 20 per cent
(except for oil companies). Despite the lower rates, tax Monetary Policy
exemptions were abolished and the tax base broadened.
Tax revenue rose 17 per cent in 2005/06, whereas the Under flexible exchange rates, the main job of the
government was expecting a drop of 12 per cent. Better Central Bank of Egypt (CBE) is to maintain price

Egypt
stability. It has become more independent and active has signed preferential trade agreements with many
since 2005, setting up a new framework for intervention Arab states (Sudan, Lebanon, Morocco, Tunisia, Libya,
using the interbank interest rate and taking many steps Jordan, Iraq and Syria) as part of the Greater Arab Free
to liberalise the various markets. It issues its own bonds, Trade Area (GAFTA). A trade and investment
with maturities ranging from one day to two years, framework agreement (TIFA) was signed with the
which it trades on the interbank market twice a week. United States in 1999 and an economic partnership
In June 2005, it established a corridor within which agreement (EPA) with the European Union (EU) in
the interest rate can fluctuate. The ceiling and floor rates 2001. QIZs were set up in 2004 under an agreement
are set by the monetary policy committee. The interest with Israel that in certain conditions allows items
rate, after being cut to encourage investment, was raised produced inside these areas to have duty-free access to
again in December 2006, from 8.75 per cent to the US market.
10.75 per cent, to curb inflationary pressure.
Egypt is also looking for new bilateral trade partners,
Banking supervision has been improved and a such as Russia and Turkey, as well as strengthening ties
wholesale reorganisation of commercial banks with longstanding partners such as Libya. Its priorities
undertaken to make the sector more efficient. Financial are trade diversification and opening up markets to
intermediaries seem to have better performed their foreign trade. As the first African country to establish
role of supplying funds to businesses. Loans to the diplomatic relations with China in 1956, it has stepped
private sector rose 8.5 per cent in 2005/06 (+3.6 per up co-operation and partnerships with Beijing. While
cent in 2004/05). the TIFA accord with the United States is conditional
on political reforms, the business possibilities with
Inflation expectations are mixed. Restoration of China are huge, and in five or six years’ time China could 243
confidence in the economy plus higher foreign exchange replace the United States as Egypt’s main trading partner
reserves ($26 billion at the end of 2006) may even by volume. Egypt is currently negotiating with China
increase the value of the Egyptian pound. Consumer and Italy to allow virtually all China’s exports to Europe
price index inflation eased sharply to 4.1 per cent in to pass through the Suez Canal (only 60 per cent do
2005/06 (from 11.4 per cent in 2004/05), and real so at present) at a cut price.
interest rates turned positive for the first time in many
years. Some inflationary pressures were observed, Egypt’s main trade partners in 2005/06 were the
however, and the inflation rate is expected to climb back European Union ($11.9 billion – 24.4 per cent of
to about 6.5 per cent in 2006/07 and 6.1 per cent in Egypt’s total trade) and the United States
2007/08. The renewed rise in inflation is largely due ($11.4 billion – 23.3 per cent), but trade with China
to the effects of bird flu on prices for farm products, was growing fast and reached $1.39 billion (from less
which make up a sizeable share of the basket of items than $1 billion in 2004/05). The balance was heavily
used to calculate prices, and to cuts in subsidies, which skewed in favour of China, whose exports to Egypt were
pushed up prices for energy (petrol rose 30 per cent) $1.34 billion (48.6 per cent more than in 2004/05),
and other items such as water. while trade the other way amounted to only
$45.4 million.
External Position
Egypt and China signed 11 bilateral economic and
Egypt is busily signing trade agreements in all technological co-operation agreements and
directions. This strategy, helped by the country’s geo- memorandums in June 2006, especially involving oil
strategic position at the crossroads of Africa, Europe and gas. China wants, among other things, to ensure
and Asia, has boosted trade in goods and increased that it has enough natural resources for its booming
foreign investment. Egypt belongs to the Common economy, and Egypt, whose main source of revenue is
Market for Eastern and Southern Africa (Comesa) and tourism, would like to attract some of the 100 million

Egypt
Chinese who travel each year. Chinese investors have makes Egypt less vulnerable to raw material price
also invested in Egyptian firms to the tune of fluctuations on world markets.
$2.7 billion, and Beijing is considering reducing tariffs
on imports from Egypt. The two countries have agreed The trade deficit is expected to rise in the next two
to build factories to make electric cables, cement, glass, years because of the sharp projected rise in imports
aluminium and chemical products, and plan to focus (29.5 per cent of GDP in 2006/07 and 30.2 per cent
next on energy, textiles, ready-to-wear clothing, in 2007/08) and the fall in exports (16.5 per cent and
electronics and construction materials. The Chinese 14.8 per cent of GDP for the same two years). Imports
vehicle firm Cherry, for example, is building an assembly of intermediate and capital goods will be needed to
plant in Egypt, scheduled to come on stream in 2007. sustain increased domestic investment and productive
A $500 million Chinese industrial zone in Egypt is also activity. The current account surplus is expected to
in the works. shrink in 2006/07 and then go into deficit in 2007/08
as the higher trade deficit cancels out the invisibles
Trade with Russia amounted to $813.5 million in surplus (mainly due to tourism). The Suez Canal was
2005/06, but in the first eight months of 2006 it the country’s third-largest revenue source ($3.6 billion)
increased 52 per cent year-on-year and reached in 2005/06, after tourism ($7.2 billion) and remittances
$953.3 million. Egypt began producing Russian Lada by foreign workers abroad (more than $5 billion).
vehicles in December 2005 and will soon turn out About 2 million Egyptians live outside the country.
Russian Gasel and Sobol minibuses.
FDI has risen spectacularly in recent years and
The trade deficit fell in 2005/06 from 11.5 to switched from oil to other sectors, such as construction,
244 11.2 per cent of GDP as a result of strong GDP growth communications and natural gas. It rose from
and higher world oil prices. Oil revenue almost doubled $435 million in 2003/04 to $4.13 billion in 2004/05
(93 per cent) in 2005/06 to $10.2 billion, up from and $9.1 billion in 2005/06. This surge was led by US
$5.3 billion in 2004/05, but oil imports rose 35 per investments, which more than doubled, from
cent as well. Volume exports in 2005/06 were up 27 per $2.04 billion in 2004/05 to $4.55 billion in 2005/06,
cent for non-oil items and 44 per cent for oil products. and accounted for half of total FDI. European
Egypt is a net exporter of oil products and textiles and investment (in second position) increased by 360 per
a net importer of food (mainly cereals) and chemical, cent in 2005/06 to reach $2.94 billion. Chinese
electrical and metal goods. It also has comparative investment was only $0.8 million in the 2005/06
advantages in exporting cotton, fruit and vegetables, figures, but is expected to be very much greater in the
medicinal and aromatic plants, and cut flowers. The coming years. Egypt’s direct investments abroad, or
share of raw materials in exports has fallen sharply capital outflow, also soared, from $232.7 million in
while that of high-tech manufactures has risen, which 2004/05 to $2.99 billion in 2005/06.

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance -13.9 -8.2 -9.7 -11.5 -11.2 -13.0 -15.4

Services 4.1 6.2 9.3 9.0 7.1 8.4 7.8
Factor income 1.4 0.1 -0.3 -0.3 0.5 0.4 -0.1
Current account balance -2.9 2.6 4.2 3.2 2.1 0.9 -2.9
http://dx.doi.org/10.1787/306287660158

Egypt
Investor confidence is also reflected by the amount France and Germany, and only 17.1 per cent of total
of net portfolio investment in Egypt, which more than debt was multilateral. The low cost of servicing domestic
tripled to $2.8 billion in 2005/06 (from $831 million and external debt (the latter consists mostly of long-
in 2004/05). Egyptian securities raised $2.69 billion term and soft loans) is a big advantage for the economy.
in 2005/06, a more than 103-fold increase over 2004/05 Debt indicators are also healthy. The external debt
($25.9 million). amounted to 27.6 per cent of GDP in 2005/06 (down
from 31.1 per cent in 2004/05), while debt service fell
The external debt was $29.7 billion in September from 9.4 per cent of goods and services exports to
2006. The main creditors were the United States, Japan, 8.5 per cent.

40
35
30
25
20 245
15
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/341277703630
Structural Issues A total of 170 of the 314 state firms earmarked

under the 1991 privatisation law are still to be divested,
Recent Developments but the programme has begun to speed up: in 2005/06,
46 firms were transferred to the private sector, up from
Current and future structural reforms mostly aim 28 in 2004/05. The proceeds of these 74 divestments
to sustain healthy economic growth and boost the (13.8 billion EGP in 2005/06 and 5.64 billion in
private sector’s capacity to create jobs. Major progress 2004/05) were the highest since the privatisation
was made in 2006 in reform of the tax and customs programme began in 1991, and comprised more than
departments, management of public finances, 52 per cent of the proceeds between 1991 and 2006
monetary policy, privatisation and financial sector and a quarter of all the firms up for sale.
reorganisation. The private sector is still hampered
by red tape and poor management of services such President Hosni Mubarak has said the country will
as port facilities. develop nuclear energy for peaceful purposes and build

Egypt
four nuclear power plants. He has asked China and Générale Bank (NSGB) and the Commercial
Russia to help and has tried to reassure the international International Bank (CIB), with 188 branches, 6 per cent
community by saying Egypt will import the enriched of all deposits ($5.4 billion) and $6.9 billion in assets.
uranium required rather than produce it itself. Egypt The $1.6 billion sale of the bank was the biggest
began a nuclear development programme in the 1950s privatisation of 2006. To facilitate its sale, $1.2 billion
and has a research centre north of Cairo with two worth of non-performing loans to the public sector was
reactors, one Russian and the other Argentine. The repaid in January 2006. The bank was the smallest of
Palestinians are expected to start buying electricity the four state-owned banks. Of the three others, the
from Egypt in 2007 with completion of a 200 KW, 50- huge National Bank of Egypt is not being privatised
mile long high-tension line to the Gaza strip. and the Misr Bank and the Bank of Cairo are due to
merge at some point.
In transport infrastructure, a 33-kilometre third
line is being added to Cairo’s metro network; on In 2006, the government also sold the shares it
completion of the new line, scheduled for 2020, the held in 13 commercial banks, and several Egyptian
metro system will have 100 kilometres of track and carry banks came under foreign control, such as the MIBank
5 million passengers a day (a third of the city’s (bought by a subsidiary of the French Société Générale)
population). The government is also spending 8.5 billion and the Egyptian American Bank (EAB), which was
EGP ($1.48 billion) on modernising the railways, as taken over by Crédit Agricole-Indosuez. In September,
a quarter of the locomotives are more than 30 years old France’s biggest bank, Crédit Agricole, launched an
and half of them need to be upgraded to carry the Egyptian subsidiary, Crédit Agricole Égypte (CA-E),
1.5 million passengers the network serves each day. which has about 2 per cent of the market; the parent
246 company aims to double its market share in three to
In telecommunications, a consortium led by the five years, making it one of the biggest privately-owned
United Arab Emirates firm Etisalat was awarded Egypt’s banks.
third mobile phone licence in July 2006 for a reported
sum of 16.7 billion EGP ($2.9 billion), with the The government also wants to reduce the number
government getting 6 per cent of its future revenue. of banks by increasing their required minimum capital.
Seven voluntarily merged in 2006, six were forced to
The banking sector has been the main target of merge, six were wound up and one new bank opened.
reforms and restructuring. The chief aim of the The sector, which has been called overcrowded, shrank
50 billion EGP ($8.7 billion) Financial Sector Reform from 57 to 39 banks, and the goal for 2007 is 22.
Programme (FSRP) due to end in 2008 is to set up an
efficient and competitive financial system, with more The last problem concerns non-performing loans.
effective intermediation and risk management, and to For state-owned banks, the investment ministry is
boost the security and solidity of both bank and non- supposed to use income from privatisation to reimburse
bank financial institutions, with closer monitoring by some of these loans. For privately-owned banks, it is
the CBE. vital to set up a department to manage non-performing
loans, and this unit should report directly to the CBE.
Under the FSRP, a wide-ranging consolidation of About half of all non-performing loans are thought to
the banking sector was undertaken, with capital have been eliminated by the banks in the past two
reorganisation, reduction in the number of banks and years.
privatisation of the large state-owned Bank of
Alexandria. The latter, which attracted bids from 12 Access to Drinking Water and Sanitation
European and Arab banks and was awarded to the
Italian bank Sanpaolo, is now the country’s biggest The water resources and irrigation ministry has
privately-owned bank, ahead of the National Société drawn up a national plan to improve management of

Egypt
water from the Nile and tackle many other problems. 1990 and 2015. Where sanitation is concerned, the
First, the rapid growth of the population and of industry access rate is 93.6 per cent of the population (99.6 per
requires ever-increasing amounts of water from a limited cent urban and 78.2 per cent rural), though only
supply. Egypt depends largely on the Nile to meet these 53.6 per cent of households were connected to mains
needs, and despite the huge reservoir formed by Lake sewage in 2004 (96.6 per cent in urban areas). Less than
Nasser, the supply of water does not increase. Under half the wastewater collected is treated, and pollution
1959 agreements with Sudan, Egypt gets 55.5 cubic and poor water quality are very serious problems. The
kilometres of water a year. This works out to an annual government’s main priority is to increase sanitation
800 m3 per person in 2005 and only about 600 m3 in access in the countryside, since the high rate of access
2015, less than the annual 1 000 m3 considered as the to water without sanitation is costly and damages water
water poverty line and the regional average of 1 200 m3. quality and the environment. The estimated cost of
Second, the country has to protect the river against providing all Egyptians with sanitation is about
pollution and waste. The Nile is often below minimum 60 billion EGP ($10 billion). The government has just
quality standards. Third, the population is highly released 20 billion EGP for rural sanitation work over
concentrated around the river valley and delta, and six years, with 1 billion of it coming from the proceeds
97 per cent of Egyptians live on 4 per cent of the of privatisation.
country’s land. To ease pressure on the river, the
government is to set up industrial zones and major The government is very active in water and
agricultural projects in the desert (such as the Toshka sanitation, heavily subsidises both and continues to
project), but the ambitious programme needs a lot of set prices to the consumer. It plans to reduce this heavy
water. The national 2003-17 water plan is an integrated burden on the budget, though such a measure would
approach involving suppliers, users and other be highly unpopular. A cubic metre of water costs an 247
stakeholders, needing investment of 145 billion EGP average 0.23 EGP ($0.04) for consumption of up to
and incurring costs of 41 billion EGP. 10 m3 a month, a rate that is among the lowest in the
world and does not cover operating or maintenance
Infrastructure and connection work for the water costs. As a result, the many bodies responsible for water
and sanitation network is handled by the Cairo and and sanitation had accumulated a deficit of 7.6 million
Alexandria Potable Water and Wastewater Organisation EGP by the end of 2002/03, which led to the
(CAPWO) in the Cairo and Alexandria areas and by introduction of a major reform. The sector also suffers
the National Organisation for Potable Water and from fragmented management, as authority is divided
Sanitary Drainage (NOPWASD) in the rest of the between a dozen ministries and state bodies, hampering
country. Most of the infrastructure is in bad condition, decision-making. There used to be no policy at all for
either broken or antiquated. Meters no longer work, the sector. In April 2004, the Holding Company for
and this hampers collection of customer charges. The Water and Wastewater (HCWW) was set up with 14
network needs huge investment. regional subsidiaries to centralise management of water
distribution and sewage treatment. An advisory body
The water and sanitation sector performs quite to examine requests for consumer rate changes was
well compared with those of other African states. In also set up. By the end of 2006, only Cairo’s rates had
2004, 86.1 per cent of the population (97.5 per cent been increased.
in towns and cities and 82.1 per cent in the countryside)
was connected to the drinking water network. Some The HCWW has nonetheless improved water
governorates (provinces) are much worse off, such as management, issuing quarterly reports on technical
Bani Suwayf (72.1 per cent) and Minufiyah (75.4 per and commercial indicators, computerising customer
cent), but country has already reached the Millennium billing, providing a help desk and website to allow
Development Goal (MDG) of halving the number of centralised handling of customer complaints and gather
people without access to water and sanitation between statistics. An awareness-raising campaign has been

Egypt
launched to induce the public to prevent waste and possibilities for these leaders, while at the same time
pollution, and especially to make people understand keeping to serious budget constraints.
that water has a price. The HCWW also plans a
programme to detect leakages and to train middle Parliament voted in June 2006 to limit the powers
managers in new methods of water management. of the justice minister and give the judiciary more
independence. The measure allows the prosecutor-
general to act independently of the ministry, gives the
Political Context and Human Supreme Judicial Council the right to monitor
Resources Development appointment of judges, provides the judiciary with an
independent budget and gives judges the right to appeal
President Mubarak has promised to amend the against decisions of the judiciary’s disciplinary
national constitution to make it still easier for political committee.
parties to nominate presidential election candidates. The
amendment is due to be put to a referendum in 2007. An estimated 20.2 per cent of Egyptians live below
The last constitutional amendment was in May 2005, the national poverty line of 1 450 EGP a year ($242).
after a referendum endorsed allowing more than one In 2004, 23 per cent of the poor (4.7 per cent of the
candidate to stand in presidential elections and approved population) were under-nourished. Social indicators and
a switch to direct universal suffrage. However, a party progress varied greatly in 2004 between the governorates
must hold 5 per cent of the seats in parliament before of Upper Egypt (34 per cent of whose inhabitants were
it can nominate a presidential candidate, and poor) and those of Lower Egypt (where only 13.9 per
independent candidates must be backed by 250 cent were poor). Pockets of poverty are highly localised
248 members of the country’s representative organisations. and thus are masked in the calculation of average
Thus the ruling party’s domination of parliament and indicators.
local councils makes it impossible for any independent
candidate to stand, including candidates from the Although the growing population adds 700 000 to
powerful fundamentalist Muslim Brotherhood. The 800 000 people to the labour market each year, the
Brotherhood, which won 20 per cent (88) of the seats official unemployment rate fell in 2005/06. New jobs
in the last elections for the People’s Assembly (the lower in the private sector reportedly reduced joblessness
house), is the main opposition group but is only there to 10 per cent, from 11.2 per cent the previous
tolerated by the authorities, not recognised as a political year. The unemployment rate is much higher among
party. President Mubarak, in power since 1981, has been young people (37.3 per cent of those between 20 and
re-elected until 2011. 25), people having finished secondary education
(65.9 per cent) and those having university education
Mubarak has promised that 2007 will see new (25.3 per cent). Part-time and short-term jobs accounted
constitutional reforms to speed up democratisation, for between a third and a half of all salaried employment.
yet the political climate is hardening. Thirteen requests The government’s strategy is to encourage growth of
for recognition by political parties, including one the private sector and small businesses, the main job-
Islamist grouping, were rejected in early 2007, and creators, especially in the services sector.
many members of the Muslim Brotherhood were
arrested in 2006. The government is worried about Egypt has a very good chance of reaching several
the rise of Islamist groups, especially at the last of the MDGs, such as those on poverty and education,
parliamentary elections, and unrest among Arab Muslim and has already achieved some of them (access to
Egyptians as expressed through demonstrations and drinking water and sanitation). The least progress has
increasingly active support for Islamist leaders. To cope been made in gender equality. Women, hit by civil
with this movement, the government needs to improve service job cuts, are now down to 25 per cent of the
social services and reduce inequality to limit the national workforce and are concentrated in a few

Egypt
segments of the labour market, mostly healthcare Egypt is among the bottom nine countries in the
(46 per cent of the national female workforce) and world for literacy, with only 40.8 per cent of the
education (40 per cent). The number of women wearing population able to read and write in 2005. The literacy
the Islamic veil increases each year; in 2006, 80 per cent rate for urban women in 2004 was 63.6 per cent, and
of all women did so. The latest demographic and health that in the countryside 29.6 per cent. Only 13.5 per
survey (DHS), in 2005, showed that 95.8 per cent of cent of rural women had access to secondary or higher
adult woman in 2004 had undergone female education. The illiteracy rate should fall in the next few
circumcision, at an average age of 10. This ancient years with increased school enrolment. In 2003/04,
tradition of the pharaohs is followed throughout the 90.9 per cent of children were in primary or secondary
country and among all social classes. education, compared with only 42 per cent in 1960.
Seven per cent of children between five and 14 were
Health and education indicators improved working in 2004. The pupil/teacher ratio in primary
significantly overall. Life expectancy rose from 55 years education was a quite high 40.9, and as a result, two-
in 1976 to 70.6 years in 2004. Infant mortality fell from thirds of pupils take private lessons to keep up. More
108 per thousand in 1961 to 22.4 in 2004. Access to than 85 per cent of children were being educated in
healthcare was around 100 per cent in both urban and state schools, 6.1 per cent in private ones and 8.1 per
rural areas, as was vaccination of children against the cent at Al-Azhar Koranic schools. Leaving aside those
main childhood illnesses. A very low proportion of the who go on to higher education at Al-Azhar University,
population is infected with HIV (0.03 per cent), but the number of university students increased from
the 2005 DHS showed that only 18.3 per cent of adults 1.6 million in 2001 to 2 million in 2006.
(between 15 and 49) knew about tests to detect it.
249

.
Ethiopia
Addis Ababa
key figures
• GDP per capita, $ PPP valuation (2005/06) 794
Ethiopia
T HEETHIOPIAN ECONOMY has performed strongly current account deficits, and the continuing political
in recent years. Growth has averaged an impressive crisis stemming from the hotly-
8.9 per cent over 2004-06, driven mainly by strong contested May 2005 election Significant donor-funded
agricultural growth along with expansion in industry results and its subsequent effect investments in infrastructure,
and services. The economy also benefited from donor- on donor support. policy reforms and strong
funded investments in infrastructure, ongoing policy coffee prices are boosting
reforms, and strong coffee prices. The current growth The government has economic growth but high
rate is significantly higher than the average rate of 5 per launched the second phase of fiscal imbalances persist.
cent per year recorded over 2001-04, under the the SDPRP, known as the Plan for Accelerated and
Sustainable Development and Poverty Reduction Sustained Development to End Poverty (PASDEP). The
Program (SDPRP). If this growth rate is sustained, PASDEP is Ethiopia’s guiding poverty-reduction
Ethiopia will make considerable progress towards strategic framework for the next five years. The objectives
achieving the Millennium Development Goal (MDG) of PASDEP are: i) annual economic growth of 7 per
of halving income poverty by 2015. This optimistic cent rising to 10 per cent by the end of the programme,
scenario is threatened by high world oil prices, which through massive investments in key anti-poverty sectors;
are partly responsible for the widening budget and ii) a sustained rise in agricultural productivity and
253
■ Ethiopia - GDP Per Capita (PPP in US $) ■ East Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Ethiopia - Real GDP Growth (%)
14 3500
12
3000
10
8 2500
6
2000
1500
2
0
1000
-2
500
-4
-6 0
1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Source: IMF and domestic authorities’ data.

http://dx.doi.org/10.1787/750577841568

Ethiopia
production, with crop output rising from approximately In spite of the increases in the food components of
15 million tonnes per year to 38 million tonnes; iii) an the agricultural products, food insecurity remains
emphasis on the textile, leather and floriculture pervasive, requiring improved agricultural productivity
industries, in an effort to boost exports. through capacity-building, improved input supplies,
technology adoption and the provision of infrastructure.
During the PASDEP period, particular improvements
Recent Economic Developments to rural roads, irrigation systems, and better provision
of extension and research services are to be emphasized.
Recent economic developments in Ethiopia have Selected small-scale government support for
been favourable, despite the ongoing political tensions. commercialisation will also be provided where there are
Real GDP growth in the 2006 fiscal year was estimated gaps in private provision.
at 5.9 per cent and was due largely to robust growth
in agriculture, industry and services. Real GDP growth The meher (main) harvest which occurs during the
is projected at 6.3 per cent in 2007, again reflecting October to December period provides more than 90 per
strong performances in the industry and services sectors. cent of annual agricultural production in Ethiopia.
The 2007 harvest is anticipated to be bountiful again
Agriculture accounted for 47 per cent of real GDP due to abundant rainfall in most regions of Ethiopia,
in 2005/06 and employs about 85 per cent of the as has been the case in the previous three years.
population. Agricultural production consists mainly of
export products such as coffee, tea and spices and other Despite the good harvests, food insecurity continues
crops such as cereals, pulses, oil seed, fruits and vegetables. to be a serious problem in Ethiopia. According to the
254 Coffee is the most important export product. Total preliminary results of the Food and Agriculture
coffee production was 301 304 tonnes in 2004/05 and Organization (FAO), World Food Programme (WFP),
is estimated to have increased to 305 000 tonnes in Crop and Food Supply Assessment Mission (CFSAM)
2005/06. Tea is next in importance as an export product. and the Disaster Preparedness and Prevention Agency
In 2004/05, tea production amounted to 5 598 tonnes (DPPA), the number of people needing emergency
and is estimated to have increased to 5 900 tonnes. It food assistance in 2007 is expected to be substantial,
is projected at 6 000 tonnes in 2006/07. Among the although less than the peak of 3.1 million in 2006. The
food crops, cereal production reached 12.99 million government and humanitarian community are expected
tonnes in 2004/05 and is estimated to have increased to continue providing assistance in 2007 to the
sharply to 18.07 million tonnes in 2005/06. All the other 7.3 million or more Ethiopians who are chronically
crops, namely pulses, oil seed, fruits and vegetables as food-insecure through the Productive Safety Net
well as cotton are estimated to have increased in Programme (PSNP).
production during 2005/06, over the 2004/05 levels.
Production and export of flowers is growing rapidly as Achievements under SDPRP in the agricultural
new local and foreign local investors have entered the sector have included: i) an increase in the amount of
sector, while existing growers are expanding. This new irrigated land, affecting 200 000 additional farmers;
agricultural commodity is generating significant jobs and ii) the development of livestock through the use of
export revenue. Export earnings have more than doubled new breeds and types of forage; iii) improved grain
to $20 million in 2005 and have been estimated at marketing and the introduction of an inventory and
$40 million in 2006 and are projected to reach warehouse system; iv) promotion of agricultural exports,
$100 million in 2007. Ethiopia’s main attractions are and v) the launch of the National Food Security
its climate, which is highly suitable for floriculture and Programme intended to attain food security for
horticulture, and an impressive scheme of investor five million chronically food-insecure people and
incentives and lower freight costs, compared with another 10 million are affected by food shortages in
competitors in Kenya and India. drought years.

Ethiopia
Funded by the World Bank, the PSN programme has received funding of $759 million, including
is aimed at combating poverty by providing 5 million $150 million from the World Bank, and was set to
people in need of help with cash rather than food begin in the first quarter of 2007. The aims of this
donations. It is hoped that the programme will boost phase include continued improvement of governance
agricultural productivity and help farmers become more and reduced financial vulnerability to shocks,
self-sufficient. The second stage of the PSN (PSN-II) particularly droughts.
Other services
14.4%
Government services
5.6%
Transport, storage and communications 6% 47% Agriculture
Trade, hotels and restaurants 13.9%

6.1% 2%
5.1%
Other industry Manufacturing
Electricity, Gas and Water
http://dx.doi.org/10.1787/230081167604
Industry only accounts for about 12 per cent of $172 million in the privatisation of the Lege Dembi
GDP but this sector grew strongly in 2005/06, with Gold Mine. Although 24 foreign and local companies 255
mining and quarrying, manufacturing, electricity and have invested $1.75 billion, exploration activities
gas all contributing to growth. Within manufacturing, have been lagging. The PASDEP aims to increase
small-scale and cottage industries grew at a robust mining exports through higher investment,
10.8 per cent in 2005/06, compared with 4.8 per formalising 85 per cent of unregistered precious
cent in 2003/04. Electricity, gas and water also grew metals production, and increasing regional and
by 10.8 per cent in 2005/06, reflecting the hydrogeological mapping to enable mineral
development of the Caleb and Shalala gasfields by exploration and infrastructure development.
Petronas (a Malaysian oil firm), which received the
concession in 2006. A gas-to-liquid plant and a Telecommunications have expanded greatly over the
pipeline to the Djibouti coastline are planned. Petronas last few years. Ethiopia has approximately 5 fixed lines
is expected to invest $1.9 billion. In addition, per 1 000 persons, one of the lowest in the world. The
electricity-generating capacity is expected to triple by government has invested heavily in basic infrastructure
2009/10, with access to electric power rising to 50 per such as fibre-optic cables, radios and satellites over the
cent of the population from the current 17 per cent. last three years. The PASDEP aims to raise the
To accomplish this, the Ethiopia Electricity Power percentage of the population within a 5 kilometre
Corporation (EEPCo) has undertaken the construction radius access to telecommunications from the current
of the largest-ever hydroelectric dam in the country 87 per cent to 100 per cent by 2010. Furthermore, the
on the Omo-Gibe River. Ethiopian Telecommunications Corporation has
contracted with an association of Chinese firms to
Ethiopia’s mineral deposits, including gold, expand telephone coverage. The $1.5 billion plan will
tantalum, iron and nickel, have been under-exploited. run from 2006 to 2010 with the goal of raising the
Gold nevertheless accounts for a significant part of number of mobile phone lines from 1.5 million to
exports, amounting to more than $40.7 million in 7 million and the number of fixed lines from 1 million
2003/04. The government also earned more than to 4 million.

Ethiopia
The tourism sector has also experienced robust for about 13.9 per cent of GDP in 2005/06 and is
growth in recent years. Earnings from the tourism slated to grow more rapidly in the future. More hotels,
industry were $134.5 million in 2005, an increase of restaurants and other tourist facilities are needed.
18 per cent over the previous year. The Ethiopian Fortunately, Ethiopia is blessed with many tourist
Tourism Commission hopes to transform Ethiopia attractions, ranging from unique historical artifacts to
into one of the top ten tourist destinations in Africa religious monuments, as well as other cultural
by the year 2020 and plans to raise the number of attractions. Tourism has grown at an average annual
visitors to 500 000 by 2010. Tourism recently accounted rate of 13 per cent over the last few years.

1997/98 2004/05 2005/06(e) 2006/07(p) 2007/08(p)

(current prices)

Public 13.8 12.1 12.5 6.9 5.1
Private 5.8 8.3 24.9 -2.0 7.0
Consumption 88.3 98.0 5.5 7.2 7.3

Public 10.2 13.8 6.2 4.4 3.6
Private 78.2 84.2 5.4 7.7 7.8

Exports 13.3 15.8 2.1 5.0 5.2
256 Imports -21.2 -34.3 10.4 6.9 7.3
Source: Domestic authorities data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/575627000138
Domestic demand, especially consumption, has Total revenue decreased from 13.3 per cent of GDP
grown strongly over the period 1998-2005, and has in 2003/04 to an estimated 12.5 per cent of GDP in
entailed booming imports and burgeoning trade deficits. 2005/06, due mainly to inefficiencies in tax collection.
In 2005/06 total gross capital formation recorded a In addition, grants were also reduced considerably due
robust growth of 17.5 per cent, with private investment to donor concerns about the recent political turmoil.
growing especially strongly. Private investment is Government spending, on the other hand, has been
expected to slump in 2007, however. Although private growing rapidly in recent years, although it has slowed
investment has been increasing in recent years following down from the much higher level registered in 2002/03.
market-oriented reforms, government investment still Government spending was estimated at 26.3 per cent
accounts for about 60 per cent of total investment. of GDP in 2005/06. Going forward, the aim of fiscal
Much of government investment has been financed policy is to restrain the deficit while prioritising poverty-
by donors. reduction expenditures in the main sectors of health,
education and agriculture. The government has enacted
a series of tax reforms starting in 2001 to boost tax
Macroeconomic Policies revenues through improved tax administration and
compliance. The 2006/07 budget targets a 16 per cent
Fiscal Policy rise in government spending, to birr 35.4 billion, largely
for infrastructure investment. As in previous years,
The fiscal deficit in Ethiopia has averaged higher spending has been allocated to the priority
approximately 5 per cent of GDP in the last few years, sectors. As a result, capital spending is forecast to
but in 2005/06 it increased to 7.4 per cent of GDP. increase slightly from 12.1 per cent of GDP in 2005/06

Ethiopia
to 12.2 per cent of GDP in 2006/07, with the largest shortfall in 2006/07 will, as usual, be financed through
share of spending going to the woreda (local or district) a mix of domestic and external borrowing. The deficit
level, followed by regional governments (some of the is forecast to fall back to the still-high 5 to 6 per cent
allocation will be spent on capital projects) and the range in 2007/08 and 2008/09 as the government
federal government. The new budget also reflects the continues with its large-scale capital projects to improve
redirection of World Bank funding to the woreda level infrastructure. The government will also continue with
through the Protection of Basic Services (PBS) its high levels of anti-poverty spending, and donor
programme. Because of the higher spending envisaged support will be crucial in achieving this objective.
in 2006/07, and coupled with the insufficient generation Notwithstanding this need, no major scaling-up of
of domestic revenue and reduced donor inflows, the donor funds in 2007/08 is expected as the political
budget deficit has been projected to be 5.8 per cent of situation is likely to remain strained, even though
GDP in 2006/07, down from the burgeoning deficit support will slowly increase as relations with donors
of 7.4 per cent of GDP recorded in 2005/06. The continue to improve in the near-term.

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue 9.9 12.0 13.3 12.6 12.5 12.4 12.1
Grants 2.4 6.6 4.9 4.6 3.2 5.2 5.2
Consolidated expenditurea 21.2 29.8 25.1 25.2 26.3 26.6 25.8

Excluding interest 12.0 17.9 15.7 13.3 13.3 13.1 12.5 257
Interest 1.6 1.8 1.3 1.0 0.9 1.3 1.4
Primary balance -2.1 -5.2 -1.9 -3.7 -6.4 -4.5 -3.9

Overall balance -3.6 -7.0 -3.2 -4.7 -7.4 -5.8 -5.3
http://dx.doi.org/10.1787/342164300568
There is currently no IMF programme in Ethiopia emerged and entered the business since 1994 with the
and key donors such as the World Bank are withholding issuance of regulations governing the businesses. At
direct budget support to the federal government. Funds the moment, there are two commercial government
will instead be transferred directly to the woreda level. banks and one specialised government bank operating
Each woreda will be allocated funding through a strict competitively with six private commercial banks. In the
monitoring programme, under the supervision of the insurance business, there is one government insurance
World-Bank-led PBS project. corporation and eight private insurance companies.
Monetary Policy The NBE is the central bank and regulatory

authority of financial institutions. It also provides
The current financial sector of Ethiopia consists of certain commercial bank activities such as holding the
the National Bank of Ethiopia (NBE, the central bank), accounts of government departments and ministries and
commercial and specialised banks, insurance companies, facilitating government import letters of credit and
the Pension and Social Security Authority (PSSA) and foreign exchange business. As the central bank of
saving and credit co-operatives. A number of private Ethiopia, the NBE’s primary monetary policy aims are
commercial banks and insurance companies have to attain relative stability of prices to help protect the

Ethiopia
poor from the impact of inflation and to create a stable to a decline in the amount of foreign exchange transacted
backdrop for encouraging saving and long-term between commercial banks, because of the financing of
investment. This involves limiting money growth at a the surge in imports by commercial banks. Ninety-
slightly higher rate than nominal GDP. two per cent of the total foreign exchange transacted in
the inter-bank market during 2006 was made available
Inflation stood at 6.8 per cent in 2005 and was by the NBE, underscoring the pivotal role that the
estimated at 10.5 per cent in 2006, reflecting high NBE is playing in providing foreign exchange liquidity
food prices due mainly to rising aggregate demand, to the market, especially for the financing of imports.
despite the good meher harvest and the rising costs of In the retail market, commercial banks’ purchase of
inputs and market inefficiencies, as well as fuel-price foreign exchange from exporters grew 12.8 per cent to
increases. Inflation is projected to ease to 6 per cent in reach $148.8 million, due to improvements in export
2007, due to continued good food harvests and earnings. Simultaneously, commercial banks’ sales of
declining international oil prices. In 2006, monetary foreign exchange to finance imports increased to almost
policy was aimed at achieving prudent growth in money $2.8 billion in 2005/06, from $2.5 billion in 2004/05
supply as well as maintaining ceilings on domestic and $1.6 billion in 2003/04. With regard to the foreign
government borrowing of about 1 per cent of GDP. exchange bureaux, their purchases of foreign exchange
However, this became difficult to achieve in view of the decreased to $43.5 million in 2005/06 from
government’s rising fiscal deficit. Also, the aim of $76.6 million in 2004/05, on account of slowdowns in
limiting “core non-food” inflation to less than 3 per receipts from travel services, and the increasing spread
cent per year could not be achieved due to the lack of between the parallel and official rates to 3.97 per cent
co-ordination between fiscal and monetary policies. The in 2005/06, from 0.68 per cent in the previous fiscal
258 NBE therefore had to increase credit to the government year. In contrast, their sales increased by 96.7 per cent
to accommodate the large fiscal deficit of 7.4 per cent to reach $31.3 million, which reflects the intention of
of GDP in 2005/06. In spite of this, the private sector travellers to buy foreign exchange at low prices from the
was not crowded out, as credit to the private sector official market.
showed a significant increase in 2004/05 and was
expected to keep the same momentum in 2005/06, A major development that has occurred in recent
reflecting strong domestic demand and the ongoing years in the financial sector is the strengthening of the
government’s infrastructure development and capacity- NBE. The central bank is currently implementing a five-
building programmes. year strategic plan. The main objectives of the bank are
to undertake tasks concerning institutional
To make indirect monetary instruments effective transformation, improving service delivery by the bank,
and mop up excess liquidity in the banking system, the enhancing the soundness of the financial system, making
NBE has instituted measures for the next five years, available timely research and policy advice to the
aimed at encouraging banks to reduce their excess government, building an efficient payment system,
reserves. For this reason, a study intended to address and enhancing currency management. The NBE has
excess reserves was completed in 2005. The NBE identified the major challenge that needs to be addressed
intends to continue taking measures to strengthen the as being the lack of skilled manpower and institutional
inter-bank foreign exchange market and further enhance dynamism. To address this problem, the NBE has
the financing of the inter-bank money market through instituted a detailed restructuring plan that included
elimination of the obstacles that continue to hamper a revision of the salary scale in 2004/05. Re-engineering
the market’s smooth operation. of business processes has also been carried out to improve
the Bank’s supervisory, regulatory and research capacity,
The amount of foreign exchange transacted in the as well as service delivery. In addition, two major
inter-bank foreign exchange market fell to $134 million divisions of the NBE, namely Government Accounts
in 2005/06, down from $138.9 million in 2004/05, due and the Cash and Foreign Exchange Inspection

Ethiopia
Divisions, completed the study and began its Imports have been growing more rapidly than
implementation. The studies pertaining to all other exports, resulting in larger trade deficits. Imports are
departments of NBE were nearing completion in 2005 now more than four times the amount of exports, and
and their implementation is ongoing. In addition to the former increased to $4.4 billion (32.3 per cent of
the capacity-building exercise of the NBE, the GDP) in 2005/06, up from $3.6 billion in 2004/05
government is also reforming other aspects of the (31.9 per cent of GDP) and $2.6 billion in 2003/04
Ethiopian financial sector. These include strengthening (27.3 per cent of GDP) owing to improvements in all
the financial sector infrastructure, developing new components of imports, with the exception of fuel.
financial products, enhancing professional skills in the Imports of raw materials increased 57.3 per cent in
financial sector and in project implementation and 2006, mainly due to the worldwide increase in the
monitoring. The World Bank is supporting this financial prices of steel and iron. Metal prices increased by
sector capacity-building project with a loan of 45 per cent in 2006 as a result of strong demand and
$5 million. production disruptions. Capital goods imports grew
21 per cent in 2006 to reach approximately $1.5 billion,
External Position reflecting the continued rise in imports of machinery
and transport equipment, related to ongoing private
Exports are projected to reach an all time high of investment activities and government capacity-building
$1.08 billion by the end of 2006. Coffee is the dominant programmes in infrastructure facilities. In 2006, capital
cash crop. The volume of coffee exports declined in goods imports, on average, generally accounted for a
2005/06 to 148 000 tonnes from 161 000 tonnes in third of total imports. Increases in anti-poverty
2004/05, but rising coffee prices pushed up the value programmes also led to rising medical and
of exports by 5.7 per cent to $354 million. Earnings pharmaceutical goods imports. With respect to the 259
from oil seed exports increased from $82.7 million in origin of imports, more than 50 per cent of Ethiopian
2003/04 to $211 million in 2005/06 thanks to imports were from Asia (55 per cent), followed by
increasing sales to China. Meat and meat product Europe (29 per cent). Of the total imports from Asia,
exports continued to increase, reaching $18.5 million, more than 50 per cent were from China and Saudi
up from $14.6 million in 2004/05. Exports are expected Arabia, with imports from the latter consisting mainly
to remain strong through 2007 and 2008. In 2006, the of petroleum products (90 per cent).
main export destinations were Asia (39.31 per cent),
with China accounting for 34.4 per cent, followed by The higher growth of imports over exports led to
Europe (37.79 per cent) and then by Africa (16.94 per a widening in the merchandise trade deficit to 25 per
cent). Of the total exports destined for Africa, two cent of GDP in 2005/06 from 24.5 per cent of GDP
neighbouring countries, Djibouti and Somalia, received in 2004/05. The trade deficit is forecast to rise further
the highest proportion (60 per cent). Exports to these to 25.4 per cent of GDP in 2006/07 after which it will
countries were qat, fruits and live animals. fall slightly to 25 per cent of GDP in 2007/08.

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance -9.7 -17.1 -20.9 -24.5 -25.0 -25.4 -25.0

Services 1.4 2.1 3.3 2.4 2.1 1.0 0.2
Factor income -0.4 -0.8 -0.7 -0.3 -0.3 -0.3 -0.2
Source: Domestic authorities’ data: estimates (e) and projections (p) based on authors’ estimates.
http://dx.doi.org/10.1787/382783536864

Ethiopia
The surplus in net services declined to 2.1 per as well as a decline in transfers and the slowdown in the
cent of GDP in 2005/06 from 2.4 per cent of GDP surpluses of net services. The current account deficit is
in 2004/05, due in part to slowdowns in net receipts expected to balloon to 13.4 per cent of GDP in 2007/08,
from travel and transportation services. The slowdown posing further questions about the sustainability of
in net receipts was due primarily to a fall in the present macroeconomic and structural policies.
number of international conferences held in Addis
Ababa as well as an increase in the number of residents The surplus in the capital account plummeted to
travelling abroad for holiday and business purposes. $515.4 million in 2006 from $570 million in 2005,
Net receipts from transportation services declined representing a decline of 9.6 per cent, on account of
from $70.7 million in 2005 to $43 million in 2006, low long-term loan disbursements, even though there
reflecting an increase in payments by Ethiopian Airlines was a marked improvement in principal loan
and Shipping Lines for fuel and port expenses. In repayments, which were largely due to Heavily Indebted
contrast, net payments to other services increased by Poor Countries Initiative (HIPC) debt relief. In spite
181 per cent to $235.4 million in 2006, up from of the decline in the surplus of the capital account, net
$83.7 million in 2005, reflecting a significant increase inflows of foreign direct investment (FDI) increased
in payments for construction, communication and to $342.7 million in 2006, compared to $150 million
insurance services. in 2005. This increase in inflows of FDI contributed
to the positive balance of the capital account.
The overall current account deficit is estimated to
have widened to a disquieting 11.5 per cent of GDP in The deficit in the overall balance of payments
2005/06, up from 8.6 per cent of GDP in 2004/05, widened to $327 million in 2006, up from
260 reflecting the significant deterioration in the trade balance $101.4 million in 2005, due to the increase in the

120
100
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/376275654538

Ethiopia
trade deficit that more than wiped out the impact of a deficit of $327.1 million in 2006, the net reserve
the surpluses recorded in transfers, the services account holdings of the banking system registered a reserve
and the capital account. The deterioration in the overall draw down of $194.1 million in 2006, compared to a
balance of payments shows the importance of the trade reserve build-up of $308.2 million in 2004. The reserve
deficit in determining the overall balance of payments draw down was solely due to NBE’s reserve draw down
position of the country. of $275.9 million, which amply offset a reserve build-
up of $81.8 million by commercial banks. The fall in
The five-year PASDEP seeks to bring down the NBE’s reserve stock was due to the intervention activity
wide trade deficit through the diversification of of the NBE in the inter-bank market in order to give
exports into products such as meat, leather articles banks liquidity, and also make payments for imports
and horticulture, while also bolstering traditional of fuel, fertilizer and infrastructure-related equipment.
exports of coffee, tea and spices. The PASDEP aims As a result of these transactions, the gross official reserves
to increase the amount of land used for coffee of the central bank at the end of June 2006 were enough
cultivation from 500 000 hectares in 2005 to over to cover 2.3 months of goods and non-factor services
700 000 hectares in 2006, with a resulting 37 per cent of 2007.
growth in coffee production. Similarly, 17 per cent
growth is projected for tea and 254 per cent for Ethiopia’s stock of total external debt fell to $6 billion
spices. Oilseed, cut flowers and pulses are also in 2005/06 from $7.2 billion in 2003/04, reflecting relief
promising new exports. granted under the HIPC initiative. 80.9 per cent of the
total debt was owed to multilateral creditors, followed
The PASDEP also seeks to stimulate the inflow of by bilateral creditors (13.2 per cent) and commercial
foreign direct investment. For this reason, the lenders (5.9 per cent). Ethiopia reached the completion 261
government has revised an investment law that reduces point under the HIPC initiative in April 2004. As a
the minimum threshold for FDI to $100 000 for wholly result, Ethiopia will receive further debt relief of
foreign-owned businesses and abolishes minimal capital $2.4 billion from the World Bank in July 2007.
requirements altogether for foreign investors who export Reductions in debt service are to be used for poverty-
at least 75 per cent of their production reduction initiatives.
The deterioration in the current account balance

of payments put downward pressure on the Ethiopian Structural Issues
birr, but exchange-rate movements have been
comparatively slight given the continued tight control Recent Developments
over currency transactions exercised by the
government. In 2006, the weighted average exchange The government recognises the contribution that
rate of the birr depreciated by 0.34 per cent in the the private sector can make to the overall economic
inter-bank market and 3.62 per cent in the parallel growth and poverty reduction of PASDEP. For this
market. The spread between the parallel market and reason, it continues to take measures that will spur the
the inter-bank market average rates widened to almost growth and development of the private sector. One of
4 per cent in 2006 from 0.7 per cent last year, reflecting the four main elements of the government’s strategy to
increasing fears of devaluation. The premium fell achieve this objective is strengthening the institutional
back to 2.4 per cent by the end of June 2006 as the framework to enable private initiative to thrive.
government clamped down on parallel foreign Progressive withdrawal of state entities from areas where
exchange dealers. the private sector has a comparative advantage, through
continued privatisation, fits well into this framework.
As a result of the change in the overall balance of In line with this framework, the government started a
payments from a surplus of $226.7 million in 2004 to privatisation programme in 1998. The process of

Ethiopia
privatising state-owned firms was slow in the initial years. Utilities and other strategic enterprises such as the
A study commissioned to find out the cause of the Ethiopia Telecommunications Corporation and the
slowdown revealed that the two public institutions Ethiopian Electric Power Company are to remain
then existing that were responsible for the programme, under state control.
the Privatization Agency and the Public Enterprises
Supervising Agency, were not co-ordinating well. Internal auditors have protested that managers of
Following the implementation of the study’s state companies subject to privatisation have pressured
recommendations, the two agencies were merged to them to produce favourable reports. In response, the
form the Privatization and Public Enterprise Supervising government has decided to create a three-member audit
Agency (PPESA) in July 2004, which is now responsible committee for each firm, consisting of one of the
for the sale of all state-owned enterprises (SOEs). In company’s board of directors and two government
order to undertake an effective and efficient privatisation representatives.
programme, PPESA set up different procedures, revised
the guidelines for preparing companies for evaluation Ethiopia’s business climate is ranked relatively
in terms of making the bid price flexible. This has favourably in the region, placing it 97th out of 175
enabled buyers to quote their own bid prices; however, countries on the World Bank’s 2007 Doing Business
the agency is the organisation that determines the price (DB) index; this is an improvement from its 101st
of sale. Following these reforms, the participation rate ranking last year. Ethiopia’s ranking is particularly
of would-be buyers in the privatisation exercise has good on the DB “paying taxes” sub-indicator, but
increased considerably. During the period 2003-05, poor on the “trading across borders” and “registering
111 state-owned enterprises were offered for sale, most property” measures. These scores are problematic given
262 of which were in the industries of food, beverages, Ethiopia’s goals of boosting exports and FDI, and
garments, leather and shoes, hotels and tourism, indicate that Ethiopia still has a long way to go to
printing, construction, textiles and agriculture. In 2006, improve its business climate.
there were 135 SOEs for sale registered on the books
of PPESA. As of May, 13 of the firms had been The government also sees infrastructural
privatised, 12 of which were bought by local investors development as an essential element in its strategy for
and one by a foreign investor. The process has gained accelerating overall economic growth and reducing
momentum and more companies are now being poverty. For this reason, during the SDPRP period, in
prepared and listed for sale. Among the companies the roads sub-sector, priority was accorded to new road
that have been prepared and listed for sale in 2007 are construction as well as major rehabilitation/
three state-owned agriculture enterprises (Awash Agro upgrading/maintenance work. Of the targeted
Industry Enterprise, Gojeb Agricultural Enterprise and 5 637 kilometre road development, 5 561 kilometres
the Horticulture Development Enterprise) and the were completed, of which 1 276 kilometres were new
Assela Malt Factory, the only malt-producing factory rural roads. As a result, road density rose from
in the country. 32.3 km/1 000 square kilometres in 2001/02 to
33.6 km/1 000 square kilometres by the end of the
In order to improve the process, the government programme. In the power sub-sector, the total electric
has sought to provide a market-oriented, transparent power generated from the inter-connected and self-
and competitive process, and has permitted the winning contained systems in the last three years increased from
bidders to reorganise the labour force of the companies 473 megawatts (MW) in 2001/02 to 768.5 MW and
they acquire. 791 MW in 2003/04 and 2004/05, respectively. During
the same period, the power generated from self-contained
The government has so far limited privatisation systems increased from 19.99 MW to 22.78 MW. Total
to smaller firms such as the Bahir Dar Textiles length of high voltage transmission lines (230 kilo volt,
factories, the Repi Soap factory, and Akaki Textiles. 132 kilo volt, 66 kilo volt and 45 kilo volt) has increased

Ethiopia
from 6 304.22 kilometres in 2000/01 to Access to Drinking Water and Sanitation

6 534.04 kilometres and 7 927 kilometres in 2003/04
and 2004/05, respectively. The length of distribution Ethiopia is favoured with a considerable untapped
line has increased from 9 512.9 kilometres in 2001/02 water supply from 12 main river basins as well as 12
to 13 798 kilometres in 2003/04 and 25 000 kilometres sizeable lakes. The total annual surface runoff of these
in 2004/05. In the telecommunications infrastructure sources of water adds up to about 122 billion m3.
sub-sector, before the commencement of SDPRP, services Estimates of underground water resources currently
were poorly-developed and did not cater for the needs stand at about 2.6 billion m3. Nevertheless, more effort
of the rural community. needs to be made to develop these water-supply sources
so that they can contribute to the reduction of poverty
The situation has started to reverse in recent years, and diseases.
due to steps taken by the government to emphasise
network expansion, service improvement and expansion Ethiopian water policy allows all stakeholders the
packages. Ethiopia made huge investments amounting opportunity to participate in improving efficient access
to birr 8 billion ($930 million) in basic multi-media to and utilisation of safe water. A comprehensive
core infrastructure to extend network expansion for National Water Resources Management Policy
woreda–net, cable-net and agri-net projects. As a result, established in 1998 and corresponding strategy
by the end of 2004/05 the number of users had introduced in 2000 provide guidance for investment
increased to 620 000 for regular fixed telephone lines, in both rural and urban water supply and sanitation.
410 630 for mobile phones and 17 375 for Internet In 2002, the government prepared a National Water
lines. Despite this progress in the infrastructure sector, Sector Development Programme and has incorporated
many challenges still remain. The PASDEP programme a Universal Access Plan (UAP) in its Second Plan of 263
for strengthening the infrastructure of the country Action for Sustainable Development to End Poverty
includes building more than 20 000 kilometres of (PASDEP). The national sanitation strategy outlines
new roads by 2010. In terms of telecommunications, the need for participatory learning, advocacy, appropriate
the PASDEP hopes to extend access to fixed telephone technology and reliance on local producers.
lines to 3.2 million people. The cellular mobile
telephone network is also to be expanded to 6.8 million A memorandum of understanding has also been
people by the end of the PASDEP in 2010. As noted signed between the Ministry of Water Resources
earlier, the electrical system in Ethiopia will also be (MoWR), the Ministry of Health (MoH), and the
increased three-fold by the end of the PASDEP, through Ministry of Education (MoE). The memorandum
the construction of five new dams, including the large ensures that while the MoWR and the MoH take
Gilgel-Gibe III project. responsibility for access to and safe utilisation of water,
the MoE will promote water and sanitation in schools
The government is undertaking a series of land through the curriculum, the establishment of clubs, the
reforms in order to encourage individual farmers, promotion of reliable technologies for water and
pastoralists and agricultural investors to make better use sanitation, and the education of teachers.
of rural land. The first step in this exercise was the
proclamation of land administration law no. 456/2005, In addition, a National Sanitation and Hygiene
which allows peasant farmers/pastoralists who are Protocol has been implemented to enhance the synergies
engaged in agriculture for a living, the right to own land within the programme’s implementation. The sanitation
free of charge. The law clarifies land usage rights and protocol identifies ways to implement hygiene and
allows for the transfer of rights. The law is already sanitation elements into the planning and finance
being tested in one of the regions on a pilot-scheme strategy. It also deals with co-ordination in the
basis, whereby 13 million farmers/pastoralists have preparation of guidelines, and defining minimum
been given temporary user rights certificates. standards and information management.

Ethiopia
The government has also established Water cent use public taps. However, 64 per cent of households
Sanitation committees (WatSan). Current WatSan in the urban areas have a public tap, while 23 per cent
committees have no formal bylaws guiding their use their own water taps.
activities. A study commissioned in 2006 indicates
that the scope of community ownership of WatSan It is estimated that 92 per cent of rural households
assets is not clearly understood in most of the live less than 5 kilometres away from the closest source
community-managed systems in Ethiopia. The of drinking water, while around 6 per cent still need
legalisation of these committees is essential since this to travel an average of 5-9 kilometres in order to obtain
will allow them to use formal services such as banking water for daily uses. The corresponding accessibility in
services (access to deposits and loans), and help them urban areas is much better. More than 82 per cent can
to address legal issues. access drinking water within a radius of 1 kilometre.
The availability of sources of drinking water within a
The successful implementation of water policies 5 kilometre radius has not notably changed in recent
has also been based on the application of appropriate years. In addition, more than 93 per cent of total
low-cost technologies, the manufacturing of low-cost households reported no improvement in the sources of
water-lifting devices, the decline in the unit costs of drinking water available to them during the past 12
construction, and political leadership from the federal, months. However, 19 per cent reported a change during
regional and woreda governments. In addition, the the last five years.
shift from public to local private sector for the
construction of wells has contributed to a more efficient With respect to sanitation, the Ethiopian Ministry
system of well production. The cost of hand-dug wells, of Health (MoH) estimates that Ethiopia has some of
264 for instance, has reportedly declined from the lowest sanitation coverage in the world, placing it
approximately birr 50 000 to birr 15 000 due to a shift at 30 per cent. Furthermore, a detailed water-quality
towards involving the local private sector1. The private study revealed that fecal matter was present in
sector and civil societies are also involved in rural approximately 40 per cent of collected and stored
water services through the establishment of co- drinking water samples. Nevertheless, only 3 per cent
operatives under the provision of the Cooperative of these contaminated water supplies were at a level that
Society Proclamation. would present a risk to human health. In addition,
63.9 per cent of the population lives in one room,
According to survey results carried out in Ethiopia, while 23.8 per cent of households live in two rooms.
36 per cent of households had access to safe drinking This issue is all the more detrimental and unsanitary
water in 2004, compared to 19 per cent in 1996. Of since 63.9 per cent of households have families with
these households, 12.9 per cent use water from a 5 to 10 people all living together; 39.5 per cent of
protected well or spring, 18.8 per cent get their water these families also have animals living with them.
from a public water tap, while 4.2 per cent have access
to their own private water taps. Ethiopian studies on Knowledge, Attitude and
Practice (KAP) reveal that most of the respondents
While 90 per cent of urban households had access were uninformed and unaware of the causes of diseases
to clean water in 2004, only 25 per cent of rural or the effects of sub-standard living conditions on their
households had access to safe water. Of these rural health and well-being. According to the studies, 71.5 per
areas, 32 per cent of family households obtain their water cent of respondents disclosed that they had never
from unclean rivers and lakes, 42 per cent receive their received education about the health and hygiene issues
water from unprotected wells, 14 per cent obtain their pertaining to water and sanitation. 52.7 per cent did
water from protected springs, and the remaining 10 per not understand the implications of overcrowding, while
1. MoWR, verbal information July 2006.

Ethiopia
28.4 per cent could not identify any diseases which were Investments in water and sanitation under the
due to poor living conditions. PASDEP are estimated at birr 15.6 billion. 77 per cent
of this sum will be provided by the government while
MoH estimates that 60 to 80 per cent of the other 23 per cent will be shared amongst the private
communicable diseases were due to the lack of basic sector and NGOs.
sanitation services. Personal hygiene has been a critical
factor in most rural areas and small towns, due to the
lack of soap and acute shortages in the quantity and Political Context and Human
quality of water. The KAP study revealed that 37.5 per Resources Development
cent of people took a bath at an interval of between 1
and 5 days, 47.7 per cent at intervals between 3 to 30 Ethiopia is a federal parliamentary republic, with
days, and 14.1 per cent took a bath after 30 days. the prime minister heading the government. The
president holds all executive powers while legislative
The current programme for the elimination of power is shared by the president and the two chambers
poverty, PASDEP, is expected to enhance access to safe of parliament. The judiciary is independent from the
water across the country through capacity-building, other branches. The ruling Ethiopian People’s
adopting low-cost, affordable and labour-intensive Democratic Revolutionary Front (EPDRF) came to
technologies, and promoting gender equality in the power in 1995. The EPDRF consists of the Tigray
design and implementation of water projects and People’s Liberation Front (TPLF), the Amhara
programmes. This programme is expected to increase National Democratic Movement (ANDM), the
water coverage from 44 to 80 per cent in rural areas and Southern Ethiopia People’s Democratic Movement
from 80 to 92 per cent in urban areas from 2005/6 to (SEPDM) and the Oromo People’s Democratic 265
2009/10. The PASDEP will also target the regions with Organization (OPDO). The EPDRF, headed by Prime
the lowest supply of water. To increase the supply of rural Minister Meles Zenawi, has sought to encourage a
drinking water, 2 133 deep wells will be constructed, system of ethnic federalism dominated by nine semi-
along with 14 908 shallow wells, 101 355 hand-dug autonomous regions with the authority to spend or
wells, 404 ponds, 505 cisterns, 14 surface water sources, raise their own revenues.
and 11 065 spring developments. 48 510 rehabilitation
work schemes will also be undertaken. With respect to Ethiopia held general elections in May 2005 in
urban development, study and design for 738 town which more than 90 per cent of eligible voters
water systems, construction works for 514 towns and participated. The ruling EPDRF won 327 of the 547
rehabilitation works for 228 towns will be undertaken, seats available in parliament. The Coalition for Unity
in order to provide the essential water services required and Democracy came second with 109 seats. However,
for private sector development. This will provide 85 per the elections were marred by allegations of widespread
cent of the population with water access, as opposed to vote-rigging and intimidation. Nevertheless, the US
an estimated 42 per cent by the end of the SDPRP Carter Center’s evaluation of the elections judged that
period 2004-05. The Universal Access Plan (UAP) will “the majority of the constituency results based on the
also enhance water supply coverage by providing water May 15 polling and tabulation are credible and reflect
supplies within 1.5 kilometres for rural areas and competitive conditions.”
0.5 kilometres for urban areas.
Some opposition supporters carried out street
The PASDEP will also provide a substantial protests and strikes against the results of the elections.
programme aimed at promoting the use of latrines. This Thousands of others were arrested and sent to various
will increase rural coverage from 17.5 per cent to detention centres around the country. As of February
79.8 per cent, and urban sanitation coverage from 2006, hundreds of political prisoners were set to go on
50 per cent to 89.4 per cent. trial for a range of offences. Journalists were being held

Ethiopia
in custody on charges of defamation while members government. Fulfilling its promise that Ethiopian
of the opposition parties were being held on the grounds forces would not stay long in Somalia, the government
of treason, genocide and fomenting a coup. These began the first phase of a planned withdrawal on
include leaders of the CUD and other members of 23 January. Some Ethiopian troops are likely to remain
civil society who are still currently in detention. Trials in Somalia for some months to come in the expectation
began in May 2006, but have been proceeding at a very that an African Union (AU) peacekeeping force can
slow pace. The outcomes of the trials are currently be assembled and put in place before complete troop
unknown. There are concerns that key opposition withdrawal. Ethiopia may remain longer than expected
members may die during trial, inciting new bouts of in Somalia as an AU force is unlikely to be constituted
protests and unrest. as quickly as hoped. This could fuel anti-Ethiopian
sentiment in Somalia.
The political climate was relatively stable during
2006, largely because the government was able to There has been no progress on the clash between
negotiate a working agreement with the majority of the Ethiopia and Eritrea over the demarcation of the borders.
parliamentary opposition. The EPDRF signed deals on In April 2002, the Boundary Commission otherwise
parliamentary procedure and rules of conduct in June known as the Eritrea-Ethiopia Boundary Commission
2006 with the two main opposition blocks, which was (EEBC) established by International Court of Justice,
an important step towards reconciliation. In a key awarded some land to both sides. Badme, a key area
development, the more radical elements of the original under dispute was awarded to Eritrea but Ethiopia
CUD that have refused to join parliament, as a way of rejected this decision and both countries have since
expressing solidarity with the position taken by the remobilised their armies along the border, leading to
266 imprisoned leaders, formed a new opposition grouping fears that war may be imminent. Military commanders
in May 2006. This grouping, called the Alliance for from both armies continue to meet in Kenya under the
Freedom and Democracy (AFD) was formed with guidance of the UN Mission to Ethiopia and Eritrea
outlawed opposition groupings including the Oromo (UNMEE). Meanwhile, the EEBC has given both sides
Liberation Front and the Ogaden National Liberation until November 2007 to begin demarcating the border
Front, which continue to wage a low-intensity war defined by the Commission in 2002, although changes
against the government. The AFD is likely to cause would not be recorded on official maps, irrespective of
trouble as some of its members may attempt to intensify the official demarcation. However, both sides have
the armed conflict, even though they lack effective refused to comply with the ultimatum.
capacity to do so.
Corruption is perceived as widespread in Ethiopia.
In December 2006, the Ethiopian government The country ranked 137th out of 158 countries on
launched air strikes against fighters loyal to the Transparency International’s Corruption Perception
government of the United Islamic Courts (UIC) in Index for 2005 (the latest available). According to
Somalia in support of the weak Somali interim expert analysis by the Ethiopian civil service reform
government. Ethiopia has frequently warned that it programme, the major causes of corruption in Ethiopia
would protect the transitional federal government in are poor governance, lack of accountability and
Somalia against the UIC which controlled most of transparency, a low level of democratic culture and
southern Somalia. Ethiopian forces quickly captured tradition, lack of citizen participation, lack of clear
the capital Mogadishu and routed the UIC. Ethiopia’s regulation and authorisation, low institutional control,
involvement in Somalia was justified by fears that a extreme poverty and inequality, harmful cultural
united anti-Ethiopian regime in Somalia may be practices, a command economy during the Derg
detrimental to Ethiopia’s security. Furthermore, the regime, weak financial management, inadequate
UIC has been receiving help from the Eritrean accounting and auditing, and a weak legal and judicial
government, an antagonist of the Ethiopian system. To fight corruption, the government established

Ethiopia
the Federal Ethics and Anti-Corruption Commission Poverty as measured by food consumption (the
(FEAC) in 2001. Since its inception, the Commission food poverty index) declined only moderately from
has launched a three-pronged campaign (prevention, 42 per cent in 1999/2000 to 38 per cent in 2004/05,
investigation and prosecution) against corruption. while poverty rates as measured by income (the head
The Commission has achieved some success in the count index) fell sharply in the rural areas from 51 per
last four years. However, it still faces a number of cent in 1999/2000 to 39 per cent in 2004/05. Urban
challenges in pursuing its goal, which includes the poverty has declined more slowly. Given the strong
lack of skilled work force in all areas of concern, performance of the economy and the agricultural sector,
particularly in investigation and prosecution. In it is projected that the head count index will fall to 29 per
addition, the low level of public participation and the cent by 2009/10. The failure of food poverty to decline
absence of a vibrant media to present a balanced report in step with income poverty primarily reflects a
on the ongoing anti-corruption campaign in the substantial increase in the cost of food.
country, have also negatively affected FEAC’s
performance. The Commission has made wide-ranging During the SDPRP period, the government placed
plans to redouble its efforts in the coming years to strong emphasis on the participation of women in the
mobilise the public and other resources against development process since improvements in women’s
corruption in a more vigorous and dynamic way. circumstances generally have positive effects on poverty
Prevention of corruption will be given top priority as reduction. For this reason, policies and strategies have
it is seen as the most cost-effective and sustainable been formulated to integrate and mainstream gender
way of fighting corruption and impropriety. dimensions in economic, social and political decisions.
Progress made in the area of gender so far includes
The Ethiopian government is currently prioritising adopting strong measures in gender-responsive goals 267
improved governance and decentralisation. The National and targets to decrease the workload of women in
Capacity Building Strategy Programme promotes civil order to enable them take part in political and socio-
service and judicial reforms, improved democracy and economic decision-making. Progress has also been
decentralisation. Civil service laws have been made in the adoption of the Penal Code that has
implemented to improve the recruitment, selection included strong measures in support of women’s rights.
and promotion of government staff. The judicial reforms Progressive legislation has been passed on women’s
include the training of more federal and regional judges access to land, credit facilities, and productive resources.
and prosecutors. A human rights commission and Furthermore, encouraging results were achieved by
ombudsmen have been appointed and efforts are being conducting awareness-creation workshops to
made to strengthen institutions with the establishment incorporate gender dimensions in budgetary processes,
of working systems and procedures. The names and resource allocation and in building women’s capacity
qualifications of approved judges have been publicly to implement strategies.
announced to ensure transparency and judicial
independence. A study is underway of human resource In terms of healthcare, the government has focused
planning and training needs assessment. Efforts have on areas such as malaria, tuberculosis and childhood
been made to increase the participation of the rural diseases, as well as HIV/AIDS. The Health Extension
population in development, to build a democratic Worker Programme (HEWP) seeks to move healthcare
system and to improve operating conditions within an delivery from hospitals towards household and village
organised administration. A manual has been prepared levels. The programme has trained 3 000 women in the
and published to attract and obtain adequate provision of sanitation and immunisation services.
participation of the public in all matters. Efforts have Some of the healthcare-related investments that have
been made to improve the capacity of officials at the taken place under the SDPRP include i) the training
woreda level and to strengthen the organisational of 10 500 nurses and other healthcare professionals,
structure of woreda administration. ii) the construction of 1 900 new health centres, iii) the

Ethiopia
immunisation of over 3 million children, and iv) greater focuses on providing universal primary school education
provision of anti-retroviral treatment (ART) drugs to by 2015, with interim targets for 2010 of 86.6 per
HIV/AIDS sufferers. By 2004, child mortality rates had cent primary enrolment and 63.8 per cent secondary
declined to 166 per thousand, while infant mortality enrolment. Current net enrolment rates (2004) in
rates had decreased to 110 per thousand. primary and secondary schools stand at 46 per cent and
25 per cent respectively.
The prevalence rate of HIV/AIDS according to
the Ethiopia Demographic and Health survey (2005), According to the Household Income Consumption
for the 15-49 age group is estimated at 1.4 per cent, a Expenditure Survey 2004/05 (HICES), urban
huge apparent decrease from the 4.4 per cent rate unemployment averaged 26 per cent, and ranged up
recorded in 2003, but with some uncertainty about the to 40 per cent in the larger urban centres such Addis
quality of data. UNAIDS estimates that the prevalence Ababa. The Urban Development Strategy in the
rate is in a range of 0.9 to 3.5 per cent. Forty-two per PASDEP aims to reduce unemployment to less than
cent of HIV-positive pregnant women are currently 20 per cent through vocational and training programmes
receiving ART drugs. Advanced AIDS patients receive and through support to small and microenterprises.
drugs under the Social Mobilization Strategy against Furthermore, microfinance institutions will be
HIV/AIDS; 94 per cent of patients have been provided encouraged to provide funding to the unemployed.
with the drugs at no cost. Finally, labour-intensive public work programmes are
to be developed to employ the urban poor.
The National Education and Training Policy was
established in 1994. EDSP III is a programme that
268

Gabon
Libreville
key figures
• Illiteracy rate (2006) …
Gabon
T HE 2005 PRESIDENTIAL ELECTION WAS a contest sources of income. Moreover, despite the government’s
between opposition parties and a “presidential majority” promises that budgetary indiscipline linked to the 2005
coalition of about 40 other parties and groups backing presidential election would not be repeated,
President Omar Bongo Ondimba for another seven- parliamentary elections in late 2006 are also expected
year term. Bongo was declared by the constitutional to have been accompanied by
Gabon should diversify
court to have won re-election with about 80 per cent excessive spending. Inflation,
its economy and prepare
of the votes cast. which fell back in 2005, rose in
for the after-oil era pursuing
2006 to 1.9 per cent, mainly
institutional reforms to
Despite shrinking oil reserves and declining owing to a higher wage bill for
improve the investment
production, oil was still Gabon’s main natural resource government workers.
climate, governance,
in 2005, providing more than half its GDP, 80 per
and eradicate poverty.
cent of export earnings and 63 per cent of tax revenue. Many institutional reforms
Without new discoveries, however, the country will were introduced in 2005 affecting business conditions,
have to prepare for the post-oil era by creating better the civil service and the judiciary, as well as restructuring
economic and institutional conditions to enable and reorganising the state sector and improving
diversification of the economy and generation of new governance – the fourth pillar of the full poverty
271
■ Gabon - GDP Per Capita (PPP in US $) ■ Central Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Gabon - Real GDP Growth (%)
4 8000
7000
3
6000
2
5000
1
4000
0
3000
-1
2000
-2
1000
-3 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/546801745412

Gabon
reduction and growth strategy paper (PRGSP), sub-Saharan oil producer after Nigeria and Angola.
implementation of which began in 2006. A national Mining provided 2.5 per cent of GDP (up from 1.9 per
commission to combat illegal enrichment was set up, cent in 2004). The country is also Africa’s second-
and top officials and government members have been largest wood exporter after Cameroon, though the
asked to declare their personal assets. Like the other wood and forestry products sector accounted for only
Central African Economic and Monetary Community 2.5 per cent of GDP in 2005.
(CEMAC) countries, Gabon has joined the Extractive
Industries Transparency Initiative (EITI), requiring it Oil continues to dominate the country’s growth
to use its oil revenue (especially windfall profits due to structure despite falling crude production and reserves,
higher world prices) to reform public finances and but investment in exploration that could stem this
balance its budget. To this end, some 170 billion CFA decline barely increased in 2005 (388.3 billion CFA
francs in 2005 windfall profits went to investment in francs, compared with 387.1 billion in 2004) and was
selected sectors, to poverty-reduction programmes, expected to drop to 360 billion in 2006. Exploration
clearing domestic debt arrears and consolidating the and production-sharing contracts since 1997 have
treasury’s position in relation to the central bank. The included royalties of 10-20 per cent of the oil sold. The
government also began drafting a national good producer gets about half of the remainder, with the rest
governance programme in 2004, with support from the going to the government. After rising slightly in 2003
African Development Bank (AfDB) and the United (6.9 per cent) and 2004 (0.3 per cent), production
Nations Development Programme (UNDP), and this resumed the decline it began in 2001 and 2002, falling
is expected to be ready by late 2006. 1.3 per cent in 2005 and 3.1 per cent in 2006 due to
ageing wells and antiquated equipment. The decline
272 is likely to continue unless more effort is devoted to
Recent Economic Developments exploration and new discoveries made. The average
price of Gabonese crude has risen in the last few years,
The economy recorded relatively strong growth in from $27.8 per barrel (2003) to $35.75 (2004) to
2005 and inflation fell by 0.2 per cent. Despite a 1.3 per $50.49 (2005) and an expected $60 in 2006. The
cent shrinkage of the oil sector, real GDP increased 3 per steady increase, due to higher world prices, certainly
cent, well above forecasts and the 2004 figure of 1.4 per boosts government revenue but does not get the country
cent, owing to the strong expansion of the non-oil out of danger. A combination of structural shocks
sector (4.3 per cent of GDP), especially mining, wood (falling national production) and a drop in world oil
and services. In 2006, however, GDP is expected to prices would seriously harm the economy, which is
increase only 2.1 per cent, with inflation rising to too dependent on oil for tax and customs revenue.
1.9 per cent. Higher world oil prices boosted the After deduction of the 750 000 tonnes delivered to the
balance-of-payments surplus to 16.7 per cent of GDP national oil refinery (Société gabonaise de raffinage –
in 2005, allowing a further reduction (4.4 per cent) in Sogara), exports are falling in step with production
external debt that brought the stock of such debt down (down 1.9 per cent in 2005 and 2.7 per cent in 2006).
to 39 per cent of GDP. The overall commitment-basis
budget surplus amounted to 9.4 per cent of GDP, and The government joined EITI to make its handling
the 2006 budget calls for reduction of the non-oil fiscal of extractive revenue, mainly from oil, more transparent,
deficit to 7.8 per cent (from 12 per cent in 2005). to assess the fiscal and economic impact of the windfall
profits of the previous three years and to try to give more
The country’s economy depends heavily on credibility to the process by which oil revenue is collected
extractive industries. The oil sector alone accounted for and transferred to the national budget. The first EITI
50.7 per cent of GDP in 2005. Recoverable proven report, covering 2004, done by independent consultants
reserves of some 2 billion barrels and daily output of and published in 2005, was considered incomplete by
around 270 000 barrels made Gabon the third-largest stakeholders because it did not include profit oil in

Gabon
Government services
Forestry
6.6%
1.3%
Other services 27.2% 50.7% Petroleum
3.6% 1.2% 1.7%

Agriculture, livestock and fishing 5.2% 2.5%
Water and electricity
Manufacturing Mining
Construction

http://dx.doi.org/10.1787/884002681682
the 2004 revenues. Profit oil is the crude oil the country also has niobium, a very high value-added
government gets under production-sharing agreements, mineral used in making special steels and heavy-duty
and it accounts for at least half of all state revenue from alloys used in aeronautics. Once investments are
the oil sector. The government promised that profit oil complete in manganese, niobium, phosphates and the
would be included in the 2006 revenue report. Despite huge Belinga iron deposits, the mining licence for
the budgetary indiscipline in 2005 due to the which was granted in 2005 to two Chinese firms that
presidential election, the government managed to save plan to invest some $3 billion, the mining industry
about half its 2005 windfall profits, since higher world should generate $300-400 million a year.
oil prices boosted oil revenue about 40 per cent in
2005 even though production stagnated. With 20 million hectares of mostly-untapped forests 273
containing about 60 marketable species, the forestry
Expansion of mining could be an alternative to oil, and wood industries can also contribute to the economy,
especially as non-oil extractive industries showed the as shown by their 2005 growth performance of 5.6 per
best growth performance (11.9 per cent) in 2005, cent. Their share of GDP is still small (2.5 per cent in
though their GDP contribution is still only 2.5 per cent. 2005), but forestry and wood employ more than a
The Moanda manganese deposits (in Haut-Ogooué fifth of the working population, and the sector could
province), mined since the 1960s by the Compagnie boost its output if its regulation were changed to make
minière de l’Ogooué (Comilog), a subsidiary of the it more efficient and reduce management costs. The
French metallurgical group Eramet, could be a motor forestry law needs to be revised to encourage local and
of such growth. Moanda produces a steady stream of foreign operators to invest more in infrastructure items
good-quality ore, expected to top 3 million tonnes in such as log carrier ships and other facilities. A technical,
2006 (up from 2 million in 2005). In March 2004, the analytical and financial audit of the state timber
Brazilian firm Vale de Rio Doce (CVRD) began company Société nationale du bois du Gabon (which
prospecting two other Haut-Ogooué deposits, at has a monopoly on the marketing of logs from Ozigo
Franceville and Okondja, estimated at 175 million and Okoumé) and conversion of the company into
tonnes. Mining these deposits will require improved the sector’s chamber of commerce could boost sector
infrastructure, however, especially railways. The Chinese growth. As lumber is the country’s second-largest export
firm Sinostel has been authorised to prospect near after oil, the government has streamlined the sector’s
Mbigou, in the south. Two other Chinese firms have taxation and imposed a moratorium on new felling
formed the Compagnie industrielle et commerciale permits so as to encourage investment.
des mines du Gabon to prospect for and extract
manganese at Njole. Gabon, which should produce Agriculture, livestock and fisheries came second
around 7 million tonnes of the ore by 2007/08, hopes from bottom on the list of major sector growth rates
to become the world’s top supplier of manganese. The in 2005, at 4 per cent. Though this was double the 2004

Gabon
figure (2 per cent), the sector still contributed only higher domestic demand for its products. Household
3.6 per cent of GDP in 2005, far below the 16 per cent consumption of water and electricity rose due to
it provided in 1964. Gabon has no strong agricultural expansion of coverage by the utilities firm SEEG (Société
or stock breeding tradition and must import more d’énergie et d’eau du Gabon), but the sector under-
than half the food it needs. The coffee and cocoa sector performed after the loss of several major customers
is also neglected compared with that in nearby countries. such as Sogara. Growth in the construction sector
Agricultural growth in 2005 was fairly satisfactory as halved to 2 per cent (from 4.2 per cent in 2004) as
a result of modernisation and privatisation of state building and civil engineering activity slackened.
rubber and palm-oil firms.
The tertiary sector (27 per cent of GDP) turned
The secondary sector grew strongly in 2005 (4.6 per in one of the year’s best performances, growing by
cent compared with 0.9 in 2004), mainly thanks to 5 per cent thanks to services (+5.8 per cent), trade
“other industries” (up 6.7 per cent), agro-food (+6 per (+5.6 per cent) and telecommunications (+4.5 per
cent), wood processing (+10 per cent) and oil refining cent). Growth in services was driven by increased
(+5.6 per cent). Water and electricity (+2.5 per cent), services to business and households, as well as real-
construction (+2 per cent) and oil services (+2.5 per estate services. Trade benefited from the general
cent) also did well, and the sector contributed 8.1 per economic upturn and from improvement in the formal
cent of GDP. trading sub-sector due to higher demand for industrial
vehicles, pharmaceuticals and oil products. Transport
“Other industries” performed well partly because and telecommunications did very well in 2005 due to
of investment linked to “rotating festivals” the healthy state of the economy. Passenger and goods
274 (independence celebrations held in a different region transport by sea and rail was up, but air transport
each year), and agro-food advanced due to stronger continued to suffer from the problems of airlines,
demand for its products during the 2005 presidential mainly Air Gabon. The impending inauguration of
election campaign and higher per capita GDP. Wood 13 recently-created national parks is expected to boost
industries did well because, at government insistence, tourism, especially eco-tourism.
more logs were processed before export; the proportion
of processed logs reached about 40 per cent of Growth in 2005 was driven more by final domestic
production. Oil refining maintained growth begun in demand, which rose 4.1 per cent in volume and
2004 thanks to the generally buoyant economy and contributed 3.8 points to overall growth, largely due

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 11.2 5.8 12.5 2.0 2.0
Private 25.2 17.4 9.5 6.0 4.4
Consumption 64.1 42.9 -1.5 2.1 1.2

Public 20.4 11.5 -1.4 7.1 2.6
Private 43.7 31.4 -1.5 0.5 0.7

Exports 46.1 66.2 2.0 -2.7 1.3
Imports -46.7 -32.3 3.2 1.2 0.8
Source: Ministry of Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/107416262314

Gabon
to a 5.5 per cent increase in final spending by households elections may also eat into government funds. The
and government, while total investment stagnated. authorities predict a non-oil primary deficit of 7.8 per
Household consumption rose because of higher wages, cent of non-oil GDP (down from 12.1 per cent in
and public consumption because of the government’s 2005) and aim to reduce it to 6.4 per cent in 2008 and
efforts to stimulate the economy. The very small rise 5 per cent thereafter. The 2006 scenario includes
in total investment was due to slack public investment continuing subsidy of Air Gabon until it is reorganised
(down 1.8 per cent), while gross fixed capital formation into Air Gabon International, which will have to survive
in the non-oil sector grew under the stimulus of rising alone in the open market, and also includes promises
demand for consumer goods. Exports of non-factor of public investment in major infrastructure.
goods and services were down 9.3 per cent in volume,
while goods exports, especially manganese and wood, The 2006 budget was drawn up without taking
did not make up for declining oil exports. Imports, account of additional spending caused by completion
spurred by increased spending on the presidential of the PRGSP, so a supplementary budget (Loi de
election, grew 4.7 per cent in volume terms. finances complémentaire) based on a new budgetary
framework including this extra spending was approved
by parliament in June 2006. After receiving a recently-
Macroeconomic Policies completed International Monetary Fund (IMF) report
on the observance of standards and codes in public
Fiscal Policy finances for 2006, the government is determined to draft
a new action plan to improve management of public
Reforming budget policy will be the cornerstone funds and make some capital expenditures more
of Gabon’s future economic policy, and tough decisions effective. Implicit subsidies for oil products will be 275
will have to be taken. To ensure the viability of its reduced and more money redirected to the poor.
policy under conditions of falling oil production and Taxation laws were thoroughly updated in 2006, and
reserves, the country is in a position to make deliberate, a department to deal with the biggest taxpayers – i.e.
gradual adjustments to its public finances, thanks to major public and private firms – was set up during the
the substantial resources it still enjoys as a result of year.
higher oil revenue. If this is not done and oil prices drop,
the country may be forced to undertake these imperative The final 2005 budget was increased 14.3 per cent
reforms in more difficult conditions, especially for the over the first draft to include the increase in oil revenue
less well-off, and to the detriment of poverty-reduction due to rising world prices of crude. The adjusted budget
efforts in general. (Loi de finances rectificative) set total resources and
appropriations at 1 354.1 billion CFA francs. Locally-
Infrastructure investment and attending to the generated revenue (oil and non-oil) increased 16.1 per
social needs of the population place constant pressure cent, while loans, including those for investment, were
on public resources. Although the improvement in the reduced 42.9 per cent, from 35 billion CFA francs to
balance of payments and the national budget makes it 20 billion. Non-oil revenue was boosted 2.9 per cent,
possible to meet these needs, the government must from 540.3 billion CFA francs to 555.8 billion, mainly
keep a sharp eye on public spending and the economy’s due to better tax collection (VAT receipts rose
absorption capacity and must redirect budget policy 8 billion CFA francs) and higher direct taxes. Customs
towards the non-oil sector. This sector is still a better receipts fell 10.7 billion CFA francs.
indicator of the country’s ability to meet growing needs,
despite its falling share of total GDP (from 56.3 per On the expenditure side of the adjusted budget,
cent in 2004 to 49.3 per cent in 2005). After the the item that saw the biggest increase was investment
budgetary indiscipline in 2005, greater rigour is required spending (28 per cent over the initial budget), followed
in 2006, especially as the December parliamentary by debt service (+14.8 per cent). With respect to 2004,

Gabon
recurrent expenditure rose 24 per cent due to transfers balance rose 50.6 per cent to 431.5 billion CFA francs,
and subsidies, while capital spending fell more than while the cash-basis overall balance was 341.8 billion
3 per cent. Public debt was reduced by 6.3 per cent due to repayment of 89.7 billion CFA francs of treasury
in 2005 but was still a fairly high 35.8 per cent of debts and interest arrears. Gabon’s budget policy, which
nominal GDP, though well below the 70 per cent still needs to be tighter, is worrying in the non-oil
CEMAC limit. sector, which had a high 2005 deficit of 12.1 per cent
of non-oil GDP, much larger than the expected 8.5 per
This budget policy gave the country a primary cent. The government aims to bring the non-oil deficit
surplus up 27.5 per cent on 2004, mainly because of down to 7.8 per cent in 2006, but it will still be higher
its increased oil revenue. The commitment-basis overall than the 5 per cent considered viable by the IMF.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 15.0 12.3 12.0 10.3 9.6 10.2 10.1
Oil revenue 18.8 16.2 15.8 19.8 19.8 18.4 18.1
Interest 7.6 4.0 4.0 2.8 2.1 2.4 2.0
276
Primary balance -6.4 11.4 11.5 12.3 12.0 9.1 8.4
Overall balance -14.0 7.4 7.6 9.4 9.9 6.7 6.4
http://dx.doi.org/10.1787/651707343724
Monetary Policy debt to banks eased due to greater revenue, mainly

from oil. Credits to the economy grew more slowly (only
Gabon’s monetary policy is in the hands of the 9.9 per cent in 2005 – 464.7 billion CFA francs, against
Bank of Central African States (BEAC), which ensures 422.7 billion in 2004), and 60 per cent were still short-
price stability and the CFA franc exchange rate in term loans, reflecting the fact that demand for capital
CEMAC. Gabon, like the other member states of is mainly driven by the cash needs of firms. This trend,
CEMAC, is required to comply with convergence if confirmed, would be worrying since the economy
criteria and multilateral monitoring, just as West African needs to diversify into non-oil sectors.
Economic and Monetary Union (WAEMU) members
do, though the WAEMU process is more advanced. External Position
Inflation remained close to zero in 2005 and was
expected to be 1.9 per cent in 2006 (below CEMAC’s The overall balance of payments almost doubled
3 per cent limit). The money supply (M2) grew 26.7 per in 2005, to 764.5 billion CFA francs (from 386.8 billion
cent in 2005, while non-monetary assets increased in 2004), largely due to a 43 per cent increase in the
only 8.6 per cent. trade surplus. The robust growth of goods and services
exports (up 32.3 per cent on 2004) was based on a
The money supply was backed by net external assets 40.9 per cent rise in the price of Gabonese crude and
that almost doubled, from 286 billion CFA francs in healthy exports of manganese and wood. In contrast,
2004 to more than 536 billion in 2005, and government the services balance deteriorated and showed a 2005

Gabon

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 16.6 35.3 39.8 47.2 51.1 44.7 43.6

Services -17.2 -10.5 -13.6 -14.3 -12.4 -13.6 -13.6
Factor income -11.5 -9.7 -13.3 -14.1 -12.3 -13.5 -12.3
http://dx.doi.org/10.1787/726646716605

70
60
50
40
277
30
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/777580601364
deficit of 26.7 per cent caused by weak performance reducing the country’s great vulnerability to external
in freight and insurance, travel and tourism, and shocks and accumulating budget reserves that would
transport. The capital balance fell substantially, due to provide future protection through more remunerative
a 27 per cent increase in the factor income deficit and long-term financial assets. Gabon’s national oil fund
a big drop in net foreign direct investment, which earns average nominal interest of barely 1.6 per cent,
shrank from 115.7 billion CFA francs in 2004 to minus according to the IMF, compared with Norway’s which
145.8 billion in 2005. has a real average yield of 4.3 per cent excluding
management costs. As part of efforts to clear much of
Analysis of the viability of Gabon’s debt suggests its domestic debt, the government has taken fewer
that if world oil prices stay high and fiscal discipline is loans from the BEAC, which carry a high rate of interest
maintained, the external debt can be brought down from (5.75 per cent). Talks with CEMAC are going on to
44 per cent of GDP in 2004 to 33.5 per cent in 2006, replace these loans with negotiable treasury bonds that

Gabon
will raise money more cheaply and boost the country’s 2006 said the situation did not improve at all in 2006
financial market. If the government reduced its external and even worsened in some respects. Gabon dropped
debt (which is more than 90 per cent of the total debt) nine places in the 2006 annual ranking for tax-paying
by early repayments and the domestic debt by procedure (to 94th from 85th), eight for foreign trade
eliminating treasury bonds on which it has to pay procedure (to 112th) and eight for rules about closing
7.5 per cent interest, it could substantially cut the cost down firms (to 130th). The government set up a public
of debt service (which stood at nearly 44 per cent of procurement office in 2005 to improve management
the national budget in 2005), better withstand shocks of public funds by examining all contracts exceeding
and increase its budget capacity to make scheduled 30 billion CFA francs.
PRGSP investments.
Infrastructure development in 2005 included road
improvement works in Libreville and Owendo, whose
Structural Issues first phase (3.5 billion CFA francs) involved the
expressway and some access roads to the SNI housing
Recent Developments development of Owendo. The biggest infrastructure
investments in 2005 related to preparations for the
The presidential election not only led to financial franchising of railways and engineering structures. The
excesses in 2005 that damaged public finances and mining firm Comilog was awarded a 30-year contract
budgetary discipline but also was one of the factors in 2006 to run the Transgabon Railway and spend
holding back the introduction of the government’s 50 billion CFA francs modernising the 650-kilometre
promised structural reforms. Owing to pressure from line from the Libreville suburb of Owendo through the
278 development partners and government support for equatorial forest to Franceville. Another major project,
these reforms, however, a serious plan has been drawn completed in 2005 in northern Gabon, was the 180-metre
up to implement them as part of the PRGSP, which tri-border bridge across the river Ntem at Eboro linking
started to come into effect in 2006. Gabon and Cameroon, with an 18-kilometre slip-road
to Equatorial Guinea. Chinese franchise-holders plan to
Gabon’s regulatory and judicial framework hampers build a hydroelectric dam to serve the Belinga iron mines
business activity at a time when falling oil production and a 560-kilometre railway to carry ore to the future
requires the country to diversify the economy and deepwater port at Santa Clara, near Libreville.
boost the private sector so that it can take over
investment activity from the government. The level of Gabon’s private sector enjoys a degree of freedom
state investment in Gabon is among the highest in rarely found in Africa but confines itself to services and
Africa but is still too focused on the oil sector. To small industry activity. Under the 01-96 privatisation
expand the non-oil sector, total factor productivity has law, the government has progressively handed over state
to be increased through serious efforts to reform capital firms to local and foreign private operators and focused
markets, business laws and governance to improve the its efforts on regulation and supplying social services to
business climate and restore the confidence of local reduce poverty. The legality and transparency of
and foreign private investors. The government set up privatisation operations are ensured under the
a private investment promotion agency (Agence de international bidding system. About 30 state firms have
promotion des investissements privés – APIP) in 2004 already been divested, notably Gabon Telecom, with
and joined the Multilateral Investment Guarantee 51 per cent of its capital privatised. The state post office,
Agency (MIGA) and the International Centre for which has swallowed up substantial government funding
Settlement of Investment Disputes (ICSID), but since 2003, is being reorganised. The liquidation of Air
thorough reform is needed of the still cumbersome, Gabon and creation of a new company, Air Gabon
costly and drawn-out procedures for setting up International, with Royal Air Maroc as the majority
businesses. The World Bank report Doing Business shareholder, is another major government project, but

Gabon
negotiations seem to have bogged down. The is still in the hands of small farmers, while coffee and
reorganisation of Société nationale des Bois du Gabon cocoa are neglected compared with the sector in
and the ending of its monopoly have not affected its neighbouring countries having similar resources. The
viability, as the company showed record profits in 2005. agriculture project PADAP (Projet d’appui au
The state monopoly may turn into a private one, développement de l’agriculture périurbaine), set up in
however, with prices and services to the public suffering October 2004 by the national development institute
if the government does not regulate it properly. IGAD (Institut gabonais d’appui au développement)
to encourage horticulture, food-crop production and
Since it was reviewed in 2002, the financial sector pig-rearing by small farmers and agriculture-related
seems to have become more stable, though it still has businesses on the outskirts of urban areas, is still a long
clear structural weaknesses. It is quite small compared way from performing adequately. The government’s
with those of other countries in the region, and its diversification programme has included handing over
banks are reluctant to provide more loans despite the the rubber company Hevegab and the palm-oil firm
great excess liquidity resulting from higher world oil Agrogabon to the Belgian tropical agriculture company
prices and repayment of the government’s domestic SIAT, which hopes eventually to meet Gabon’s needs
debt. Loans to the private sector fell from a high of in edible oils and soap, which are currently imported.
13.2 per cent of GDP in 2002 to less than 9 per cent The government also plans to build the sector’s capacity
in 2005 (from 22.6 to 19 per cent of non-oil GDP), by reopening the rural development school (Ecole
probably because of fixed interest rate bands and banks’ nationale de développement rural) and redefining the
inability to monitor loan portfolios effectively. The job of the rural development office (Office national de
banks say there are few viable projects around and that développement rural).
their loans are often non-performing. They deal with 279
only a few local or mixed-capital firms and are more The new forestry law obliges timber firms to present
used to doing business with foreign firms, notably oil a plan of operation including an environmental survey,
companies, which often use external funding. They a felling rotation schedule and provision for
also tend to play safe, setting minimum deposit and reforestation. Creation of 13 national parks covering
personal income levels for customers. Lack of financial about 11 per cent of the country will enable better
instruments other than loans means that small and supervision of the country’s plant and animal life to
medium-sized firms often have no access to banks. preserve its biodiversity and resources.
Microfinance is rare, but the government plans to allow
the business promotion fund Fodex (Fonds d’expansion Access to Drinking Water and Sanitation
et de développement de la petite et moyenne entreprise)
to extend its activities to include microfinance. These Gabon is one of the 10 best-endowed countries in
shortcomings slow the growth of the private sector, the world where water is concerned, with 90 per cent
which the country needs to diversify the economy. of the country supplied by water courses (rivers, lakes,
Enlarging the financial sector requires structural reform lagoons and streams) and 72 per cent of its land area
to reduce or abolish the minimum-deposit rule and irrigated by the Ogooué river and its tributaries. The
eliminate obstacles that prevent banks from making 2005 national poverty survey (Enquête gabonaise pour
reliable credit risk assessments of local customers. Other l’évaluation et le suivi de la pauvreté – EGEP) showed
needed steps include strengthening the legal framework, that although access to drinking water had significantly
registering mortgaged or secured assets offered as improved in the previous five years, the country had
guarantees for loans, increasing the legal rights of far to go as regards sanitation.
creditors and improving business accountancy practices.
The country’s water resources are managed and
Gabon has no tradition of agriculture and imports developed by the Ministry of Mines, Energy, Oil and
most basic food items it needs. Tropical fruit growing Water Resources and the Gabonese energy and water

Gabon
company SEEG (a subsidiary of the French group than eight out of 10 households in Gabon have
Véolia Water). SEEG obtained a 20-year nationwide drinking water – ranging from two out of three in the
franchise in 1997 to supply drinking water and poorest quintile to nine out of 10 in the richest. Access
electricity, but serves only major urban areas. The varies by geographical region, with the north and
government continues to supply remote areas, either south (the poorest parts of the country) having the least
with surface water that needs treatment before delivery, access. The countryside, where fewer than two
or water from wells that requires simpler treatment. households out of five have access, is much worse off
than urban areas.
Water is sold at the same price wherever the customer
lives, which is theoretically fair, except that in reality many Access to drinking water has improved a little over
households (equal to more than a quarter of the 46 per the past five years. Comparison with Gabon’s last
cent of directly-connected households) get their water population and health survey (Enquête démographique
from a connected neighbour, who re-sells it to them at et de santé du Gabon – EDSG) in 2000 showed that
a profit. Although a subsidised official supply, including surface water was used for drinking by only 17 per
credits, costs only 81 524 CFA francs a month, which cent of the population in 2005, down from 23 per
would seem affordable for most, except the poorest cent in 2000. This overall figure breaks down as 5 per
households (the average monthly income of the bottom cent of urban households in 2005 (7 per cent in 2000)
10 per cent is 172 000 CFA francs), this does not reflect and 59 per cent of rural households (down from 66 per
the true situation. The gap between the “fair” official cent). Although the two surveys did not define access
price and the price actually paid favours wealthier and to drinking water in the same way, this fall in the use
often better-supplied households, so the official price of surface water (the main source of unsafe water) can
280 is not an effective “subsidy” because the poor do not fully improve such access. These good results were obtained
benefit from it. because 80 per cent of the population lives in urban
areas, which are easier to serve, and because some rural
More than 40 per cent of households have running areas have village water systems.
water, and more than a quarter get water from a
neighbour’s tap. Surface water, which may not be Sanitation offers a much less hopeful picture.
clean, is only used by 17 per cent of households, Fewer than two out of five households use hygienic
practically none of them in Libreville, Port Gentil and facilities (flush toilets and improved latrines), and
most other urban areas. It is the main source of supply this is not dependent on social class. Even in the
in the countryside (for about 60 per cent of households) richest quintile, 47 per cent of households use non-
but with great disparities by income category. In the hygienic toilets (simple latrines, septic tanks), and
richest quintile of the population, more than half of about half do so in Libreville. Non-hygienic facilities
households have running water and fewer than one in can cause infectious diseases, especially if they are not
10 uses surface water, whereas in the poorest quintile, deep enough or far enough away from the house. The
only one in six has running water and one in three uses situation is especially worrying for those in the poorest
surface water. two quintiles nationally, in rural areas and in the
north and south of the country, where non-hygienic
The use of tap water is a good indicator of access toilets are virtually the norm.
to drinking water, and it shows that rural areas still lag
far behind. Water targets in the Millennium Under a programme launched as part of the 7th
Development Goals (MDGs) define drinking water European Development Fund (EDF) covering
as water found less than 30 minutes from a household communities of more than 150 people in the north and
and coming from an individual tap, or from another west, 165 successful wells have been drilled in five
tap (either public or belonging to a neighbour or seller) provinces since 2000, but requirements in rural areas
or from a well. According to this definition, more are still great. Village water projects could reach more

Gabon
people if older physical structures were better and was marked by accusations and protests over the
maintained, making it unnecessary to devote a large electoral roll, especially in rural areas. At the end of the
share of available funds to repairing them. Experts say first week, the 13-party opposition coalition (Partis
that to avoid repairs, a minimum maintenance budget politiques de l’opposition – PPO) demanded in vain
should be set and local people must be involved. In the that the election be postponed by a month because
long term, the government is planning national drinking the legal deadline for posting the electoral lists had not
water distribution using solar-powered pumps in the been met. The PPO claimed the interior ministry had
countryside for all villages of between 100 and 250 given the lists to the independent permanent elections
people, especially in river and lake areas. A water board (Commission électorale autonome et permanente
database (surface and groundwater) is also being – Cénap) only 20 days before the vote instead of the
compiled. legally-required 45 days.
With support from the Global Water Partnership The 2006 PRGSP identified governance as one of
Central Africa, a number of projects and programmes four keys to the country’s growth and poverty-reduction
have been launched in countries of the sub-region, strategy. To improve management of the proceeds of
including Gabon, which share the Congo river basin its mining (mainly oil) activity, Gabon has joined the
and its tributaries. The first joint project is for reports EITI, set up a national commission to fight illegal
on each country’s water development situation, to be enrichment (Commission nationale de lutte contre
followed by national action plans for water. A feasibility l’enrichissement illicite) and introduced a new law on
study on channelling water from the Congo river basin public procurement to satisfy requirements of
to Lake Chad is also planned as an integrative project transparency, good governance and the use of resources
under the New Partnership for Africa’s Development for social development and reducing poverty. However, 281
(NEPAD). public investment is still of very poor quality, ineffective
and far from the priorities set out in the PRGSP. The
Gabon’s aim is for 70 per cent of the population public investment programme (Programme
to have drinking water by 2015. The government wants d’investissements publics – PIP) will have to be
to build small water systems in larger villages if it can thoroughly reviewed, since the present system of public
get the funding. In villages that already have water and resource allocation prevents the country from achieving
electricity, it is planned to introduce improved water its goals of poverty reduction and growth promotion.
systems by linking village water systems together and
having them run by the local communities. Rural water Despite a high literacy rate (85.4 per cent in 2005)
supply will be treated according to World Health and net primary school enrolment (92.4 per cent), the
Organisation (WHO) standards, and proceeds from its country’s education system is weak, with high repetition
sale will go to maintain the hydraulic infrastructure and rates at all ages and a high attrition rate. Over the
pay maintenance workers. 2000-03 period, the repetition rate was 37 per cent at
the primary level and 30 per cent in secondary school,
and on average only 36 per cent went on to higher
Political Context and Human education. This is mostly due to overcrowded classes
Resources Development in urban areas, especially Libreville, the poor quality
of teaching staff and of the instruction provided, and
Parliamentary elections were held on 17 December the shortage of teachers in rural areas.
2006, with all registered political parties allowed to
take part. The open and lively two-week campaign The health situation is one of the country’s notable
featured sharp clashes between supporters of the majority contradictions. Gabon is classified as poor even though
Gabonese Democratic Party (Parti démocratique du its per capita GDP is that of a middle-income country.
Gabon – PDG) and a multitude of smaller parties, Life expectancy is 2005 was only 55.2 years for women

Gabon
and 53.7 for men, according to the UNDP’s 2005 of the population), the poverty rate was over 45 per cent,
World Human Development Report (HDR). The representing 25 per cent of the poor.
mortality rate for children under five years of age was
87 per thousand inhabitants, according the 2000 Social inequality is very clear, with about 90 per cent
EDSG, and 95 according to UN estimates for 2000- of national income held by the wealthiest households
05, while infant mortality (below the age of one) was and the richest quintile alone accounting for half of
58 per thousand for the same period – troubling figures national income. Even the government’s social spending
for a country with such high income. Maternal mortality benefits the rich, with 33.5 per cent of these transfers
remains high at 519 per 100 000 live births. Gabon going to the richest quintile and only 9 per cent to the
had only 29 doctors for every 100 000 inhabitants in poorest. Such inequality cancels out much of the effect
2004, and less than 6 per cent of its health budget of economic growth on poverty reduction and threatens
went to primary healthcare. the MDG poverty targets, according to the 2005 HDR.
Using income, health and housing criteria, more than
High rates of infant and maternal mortality are 81 per cent of Gabonese feel they are poor. Gabon was
mainly due to diarrhoea, malnutrition, anaemia and classed high among the middle-income countries in
especially malaria. Access to healthcare varies greatly 2004, with a per capita GDP of $5 226 (80th in the
and is skewed towards wealthier families, who account world), but the UNDP Human Development Index
for a quarter of all visits to health centres, compared puts it only in 123rd place, in the medium human
with only 14 per cent for the poor. The disparity is partly development category. This situation is often explained
due to the cost of treatment and the shortage of by an excessive debt-service burden which prevents
medicine. HIV/AIDS affected 8.2 per cent of the more spending on social services and by the
282 population in 2004, according to sentinel sites, and ineffectiveness of public investment. Gabon’s desire to
recent UNAIDS data showed that 4.2 per cent of combat poverty seriously was shown by the drafting of
people between 14 and 49 were infected. To address its first poverty reduction strategy paper (PRSP) in
these glaring deficiencies, the government is finalising 2003, followed by a PRGSP in 2006, though the
a national health development plan (Plan national de country is subject neither to the conditionalities of the
développement sanitaire – PNDS) for 2006-10 to Heavily Indebted Poor Countries (HIPC) Initiative
improve the health system, develop human resources, nor to those of the poverty reduction and growth facility
improve the financing of the system, adapt the supply (PRGF).
and quality of care, and tackle the main health problems.
The PNDS will be backed up by national anti-malaria Unemployment was estimated in 2005 at about
and anti-TB programmes. The national strategic anti- 25 per cent of the working population, despite a slight
HIV/AIDS programme covered the period from 2000 (2.1 per cent) increase in overall employment due
to 2005. mainly to a 4.2 per cent rise in public sector
employment, which already accounted for 51 per cent
Poverty in Gabon has been described by the EGEP, of the workforce. The number of civil servants alone
using the unified development indicators questionnaire grew 5.2 per cent year-on-year. Private sector
(QUID) drafted in 2005 with the help of the World employment was sluggish, rising only 0.1 per cent on
Bank. The EGEP showed that the poverty line – 2004; most of this increase came in the oil sector
429 336 CFA francs ($818) a year – stood at 14 per (+0.9 per cent), while jobs in the agro-food industry
cent of average income and that 33 per cent of the shrank by 5.1 per cent. The modern sector wage bill
population was poor. The survey revealed that poverty (all employers) increased 7 per cent in 2005 because
was mainly urban, with routinely vertical inequalities. of a 13 per cent rise in wages in the “other industries”
Urban areas (80 per cent of the population) had a and “banks and insurance” sub-sectors, as against an
poverty rate of only 30 per cent but were home to increase of less than 2 per cent in parapublic firms
75 per cent of the poor. In the countryside (20 per cent

Ghana
Accra
key figures
Ghana
T HE GHANAIAN ECONOMY is benefiting from one of GDP growth reaching an estimated 6.2 per cent in
the most successful reform programmes in Africa, with 2006 from the average annual rate of 5.5 per cent
increased growth reflecting strong economic during 2000-05. Growth is
Reforms and political
fundamentals underpinned by anti-inflationary projected to remain at around
stability are leading to an
monetary policy and fiscal consolidation. It is now 6.1 per cent in 2007 and 2008.
emerging market economy
apparent that the private sector is responding positively. Recent strong performance has
while export diversification
Banks are restructuring their portfolios in order to enabled Ghana to accelerate
and public-service delivery
increase lending to the private sector. With inflation implementation of its poverty
will speed up growth
expectations subdued, business-planning horizons are reduction strategy. Economic
and development
broadening, and rising capital inflows suggest increasing growth is becoming more
investor confidence in Ghana’s economic prospects. broad-based, although the agricultural sector still
The economy seems to be on the cusp of becoming an dominates economic activity. The track record in
emerging market. strengthening democracy and a stable political
environment bodes well for continuing economic
The improving policy environment has contributed expansion. However, the political situation could be
to a recent upsurge in economic growth, with real improved further by tackling growing perceptions of
285

■ Ghana - GDP Per Capita (PPP in US $) ■ West Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Ghana - Real GDP Growth (%)
7 3500
6 3000
5 2500
4 2000
3 1500
2 1000
1 500
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: Authors’ estimates and predictions based on IMF and Ghana Statistical Office data.
http://dx.doi.org/10.1787/253016408551

Ghana
corruption in public life. Also, going forward, Ghana II, the government expanded the PSI initiatives in
needs to diversify its export base and follow through 2006 through measures to enhance access to credit
on its structural transformation, in order to enhance and agricultural inputs, and by increasing the availability
private-sector participation in the economy. Economic of extension services.
growth also needs to accelerate in order to generate
adequate employment growth, further reduce poverty, This is highly important because the agricultural
and attain middle-income status over the next decade. sector remains constrained by structural problems. For
Ghana must furthermore upgrade public services, example, it was reported in 2006 that only 5 per cent
especially in water and sanitation, to improve the health of irrigable land in Ghana is actually irrigated, leaving
of the population. production largely dependent on the vagaries of the
weather. Extension services are so limited that each
technical officer is responsible for helping nearly 2 000
Recent Economic Developments farmers. Moreover, 40 per cent of all agricultural output
is wasted due to inadequate storage facilities, marketing
Ghana is implementing the Growth and Poverty chains and infrastructure.
Reduction Strategy II (GPRS) for the medium-term
2006-2009. The country’s growth performance has
continued to be robust, with real GDP growth reaching Industrial activity accelerated in 2006 with a growth
6.2 per cent in 2006, up from 5.8 per cent in 2005. rate of 7.3 per cent as compared with 5.5 per cent in
Performance in 2006 represented the first time in 2005. Industrial activity in 2006 was led by a 9 per cent
several years that economic growth had reached the expansion in gold production. Industry growth would
286 six per cent mark and constituted the sixth consecutive have been even stronger in 2006, had there not been
year that the economy has experienced strong growth. reduced electricity supplies resulting in part from low
water levels at the Akosombo Dam, the largest source
Until recently growth was driven largely by the of electricity in Ghana, as well as a failure to invest in
agricultural sector. In 2006 it was led by the industrial additional generating capacity, and losses due to illegal
and services sectors, although agriculture continued to connections. The Volta River Authority (VRA), the
perform strongly. The 5.7 per cent growth of agricultural main overseer for electricity, plans to install an
output was below the 6.6 per cent recorded in the emergency thermal electricity generator at Tema, to
preceding year. The slowdown led to a slight decline in be upgraded by a larger thermal unit in the next few
agriculture’s share in GDP to 35.8 per cent in 2006 years. As a share of GDP, the industrial sector improved
from 36 per cent in 2005. The boom in agriculture in from 24.7 per cent in 2005 to 25.4 per cent in 2006.
recent years is mainly due to cocoa production, which This share, however, is still some way off the
has responded very favorably to incentives put in place government’s target figure of 37 per cent by 2010. In
by the government. (See Box 1). In 2006 cocoa output order to achieve this, the industrial sector would need
rose by 8.7 per cent, following an average yearly expansion to expand by at least 12 per cent per annum, which is
of 19.8 per cent over 2003-2005. significantly above the rate currently being achieved.
Other sub-sectors of agriculture, notably staple In particular, difficulties in the manufacturing

crops like cassava as well as palm oil, continued to sector have been hampering efforts to boost industrial
benefit from the Presidential Special Initiatives (PSI) growth. In 2006 manufacturing grew by 4.2 per cent
on agriculture. These initiatives aim to modernise compared to 5 per cent in 2005. The reasons put
Ghanaian agriculture through the dissemination of forward for the closure of British American Tobacco
information about better farming practices, the provision in December 2006 underscored the main problems
of irrigation facilities, and the distribution of improved facing manufacturing activity in the country. High
varieties of seeds and fertilizers. As part of the GPRS taxes and the influx of cheap imports have constantly

Ghana
The Role of the State has been Crucial in Revamping Cocoa Production in Ghana
Since 2000 the government of Ghana has made a concerted effort to reform Ghana’s cocoa sector, which
in the 1960s and 1970s led the world in production, but now ranks third. Various government measures –
increased producer prices, bonus payments, effective disease and pest control programmes, improved
agronomic practices and the promotion of new and innovative methods of cocoa farming – have succeeded
dramatically, resulting in record output.
In the 2005/06 crop season, cocoa output reached approximately a record 740 000 tonnes. This
represented an increase of 23 per cent over the 600 000 tonnes harvested in the preceding season and
bringing the average for the past three seasons to 692 300 metric tonnes, more than twice the 340 000 tonnes
produced in the 2001/02 season.
The increase in producer prices contributed significantly to the rise in output. In the 2005/06 season,
the producer price paid per tonne of cocoa was ¢9 million or ¢562 500 per bag of 64 kilogrammes. The
producer price represented 72.86 per cent of the net f.o.b. price, 2.86 per cent more than previously agreed.
In fact producer prices have increased nearly threefold since 2001 when farmers were paid only ¢3.475 million
per tonne. The government has also guaranteed the farmers’ minimum net share at 70 per cent of the net
f.o.b. price in any particular year. For the 2006/07 season a new producer price of ¢9.15 million per tonne,
representing 72.19 per cent of the net f.o.b. price, was announced in October 2006. The government has
also used bonus payments to farmers as an additional incentive. In the 2005/06 season a bonus of ¢17 140 287
per bag was paid. In addition, the government has instituted a Farmers’ Scholarship Trust Fund to finance
scholarship awards for cocoa farmers in secondary educational institutions. A total amount of ¢15 billion
was paid into the Cocoa Farmers Scholarship Trust Fund in the 2005/06 Season to finance 2 500 scholarship
awards for cocoa farmers. Moreover, the government has provided seed funds for the establishment of a
housing scheme for farmers and has already started the construction of some houses under the scheme through
the Department of Rural Housing. Furthermore, the government has launched a Vehicle Loan Scheme for
Cocoa Farmers, aimed at helping the farmers acquire their own means of transport. In 2006, 33 cocoa farmers
benefited from the scheme.
Another major measure instituted by government to boost cocoa production has been disease and pest
control. Since the programme started in 2001, more than 740 000 cocoa farms have been sprayed against
black pod disease. Nearly 520 000 farmers have benefited from the programme. The programme has also
offered employment to over 50 000 youths from local communities. The government intends to expand
the programme in 2007 to reach 775 000 farms, covering 650 000 farmers, with the resulting creation of
more than 51 000 jobs. Also, a number of feeder roads have been rehabilitated in the cocoa-growing regions
of Ashanti, Brong Ahafo, Central and Western Regions.
been cited by manufacturers as militating against the targeted textiles and ICT industries. This strategy,
sector. Also, private-sector organisations and industry however, appears to have failed, as the local industry,
leaders have complained about the neglect of the sector relying on antiquated machinery, facing constant
and the inability of government to implement bold power outages and producing low volumes, has
measures to salvage it from stagnation. The continued to decline in the face of cheap imports of
government’s recent manufacturing growth strategy textiles and second hand clothing.

Ghana
Government services
Agriculture and livestock
10.5%
Other services 23.4%
8.4%
Trade, hotels and restaurants 7.8%

8.8% Cocoa production and marketing
Transport, storage and communications 4.9%
10% 8.7%
Construction 3% 5% Other agriculture
9.5%
Electricity and water Mining and quarrying
Manufacturing
Source: Authors’ estimates based on Ghana Statistical Office data.
http://dx.doi.org/10.1787/178726760846
The services sector grew by an estimated 6.5 per 2006. Tourism receipts are expected to reach $1.5 billion
cent in 2006, slightly higher than the 6.2 per cent by 2007 – the third largest foreign exchange earner after
achieved in the preceding year. The expansion in 2006 merchandise exports and remittances. In order to
was driven by increased government expenditure in achieve this, the government is pursuing a strategy of
the provision of services and increased activity in finance establishing Ghana as the “homeland” for Africans in
and insurance services. Also, growth in mobile the diaspora. This is intended to change the current
telecommunication was strong in 2006, as Ghana situation, where the majority of tourists to the country
Telecom, Millicom and Scancom – providers of mobile are Ghanaian expatriates.
phone services – all expanded their services. The
288 combined activities of the telecom providers have Investment performance continues to improve
contributed to an increase in tele-density (telephones significantly. In 2006, there was a sharp increase in
per 100 persons) from approximately 5.2 per cent in both public and private capital formation. Reductions
2003 to 6.7 per cent in 2006, with the number of in the stock of external debt and domestic public debt
telephone lines more than doubling from approximately over the last few years have improved the savings-
650 000 in 2003 to more than 1.7 million in 2006. investment balance and growth dynamics of the country.
The tourism sector continued to grow with visitor In 2006, debt-reduction enabled the government to
arrivals and spending increasing by an estimated 47 per commit more resources to capital expenditure. The
cent and 69 per cent respectively between 2000 and volume of domestic private and public capital formation

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 11.2 12.0 14.5 9.5 6.9
Private 12.0 17.0 12.6 6.4 10.0
Consumption 89.7 96.6 7.7 4.6 6.8

Public 16.1 15.3 2.2 9.2 4.9
Private 73.6 81.3 8.5 4.0 7.0

Exports 33.9 36.2 5.9 4.4 4.6
Imports -46.7 -61.8 15.4 4.5 9.5
Source: Authors’ estimates and predictions based on Ghana Statistical Office data.
http://dx.doi.org/10.1787/062304780517

Ghana
is projected to increase again in 2007 and 2008 as ratio fell from around 21 per cent in 2004 to an
confidence in the economy is maintained. On the other estimated 17.8 per cent in 2006. Moreover, the ratio
hand, export growth is expected to slow down, reflecting of domestic debt service to total revenue fell from
the continuing lack of progress in significantly 45.1 per cent in 2003 to 27.5 per cent in 2005 and
diversifying exports. was estimated at 24 per cent in 2006.
In 2006, total revenues increased, due in part to a

Macroeconomic Policies reform of tax administration which strengthened the
revenue collection agencies, and to the introduction of
Ghana maintains good relations with the IMF. The new taxes and increased grants. Since 2004 when revenue
Poverty Reduction and Growth Facility (PRGF) loan collecting agencies were allowed to retain 3 per cent of
expired in October, and will not be renewed. Instead, revenue collected to meet their administrative costs, the
the government may establish a Policy Support agencies have continued to exceed their targets. As a
Instrument programme (PSI) with the Fund, under result, the domestic tax effort increased to 19.8 per cent
which the IMF agrees to advise on and monitor policies of GDP in 2006 from 19.4 per cent of GDP in 2005.
but will not provide direct financial support. Also, donor grants increased to 5.6 per cent of GDP in
2006 from 5.3 per cent of GDP in 2005. Nonetheless,
Fiscal Policy given the narrow tax base, with its high dependence on
petroleum taxes, it might be difficult for the government
With macroeconomic stability now well established, to increase revenue significantly in the absence of efforts
the challenge is to shift the thrust of macroeconomic to widen the tax base. As a result, tax revenues are likely
policy towards accelerated growth through targeted to remain virtually flat in 2007, and subsequent 289
public investments and encouragement of private- improvements in total revenue will depend largely on
sector development. increased grants. In this regard, Ghana’s fiscal situation
will benefit from a $547 million grant from the United
In 2006 the government sought to ‘crowd-in’ private States Millennium Challenge Account (MCA), which
investment through a net domestic debt repayment is by far the largest award so far under this programme.
equivalent to approximately 1 per cent of GDP, while
also enhancing resources for development. The policies The government maintained an expansionary
were largely successful insofar as the domestic debt/GDP expenditure programme in 2006 following the

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenues 15.8 19.1 21.3 19.4 19.8 19.9 20.2
Grants 2.2 4.7 6.4 5.3 5.6 6.1 5.5
Interest 7.0 6.2 4.4 3.6 3.0 2.7 2.5
Primary balance -1.1 1.8 0.8 0.7 -1.3 -1.0 -1.1

Overall balance -8.1 -4.4 -3.6 -3.0 -4.3 -3.7 -3.6
http://dx.doi.org/10.1787/258534361777

Ghana
improvement in revenues. Total expenditures increased The easing of inflationary expectations in 2006
to 32.9 per cent of GDP in 2006 from 30.8 per cent contributed to a decline in interest rates during the year.
of GDP in 2005. The government appears to be The Bank of Ghana (BOG) policy rate – the prime rate
succeeding in controlling recurrent expenditure – which had been lowered continuously from 2003,
following the enactment of a number of legislative was maintained at 14.5 per cent in 2006. Short-term
measures, including the Financial Administration Act, rates in the financial system generally declined, with
the Internal Audit Act and the Procurement Law in the average rate on the 91-day Treasury bill shedding
2004. As a result, the increase in total expenditure in 3.6 percentage points to 10.3 per cent in 2006. After
2006 was due largely to increased capital spending, declining much faster than deposit rates over the 2000-
which was a welcome development, given the near 05 period, lending rates remained stable at 27.7 per cent
stagnation of capital spending in recent years. The between September 2005 and September 2006.
government’s resolve to continue controlling current
spending in favour of public investment will be tested Ghana’s managed floating exchange rate regime
in 2007 by strong political pressures as the 2008 general appears to be working well, with fewer interventions
elections approach. Even so, it is anticipated that the recently from the BOG to smooth fluctuations in the
continuing decline in interest payments will enable foreign exchange market. Higher levels of remittances,
the government to maintain a stable overall fiscal deficit steady donor inflows and strong earnings from cocoa
in 2007 and 2008. continued to help offset the effects of higher oil prices,
enabling the cedi maintain its relative stability against
Monetary Policy the major international currencies. In 2006, the cedi
recorded a slight depreciation of 0.9 per cent against
290 Ghana’s monetary policy remains focused on the US dollar, following the moderate depreciations of
bringing down inflation to the single-digit level and 2.1 per cent and 2.2 per cent in 2005 and 2004
limiting exchange-rate volatility. The inflation objective respectively. These moderate movements stand in sharp
has been pursued by controlling the amount of reserve contrast to the unprecedented depreciation of 57 per
money, with broad money supply as the intermediate cent that was witnessed in 2000. International
target. In 2006, the monetary authorities lowered the recognition of the stability of the cedi was established
growth of reserve money to 16.4 per cent from 19.3 per in October 2006 with the first offshore cedi-
cent in 2005. However, broad money supply (M2) denominated eurobond issued by the African
increased very rapidly at 34.6 per cent, compared to Development Bank.
22.5 per cent in 2005. Much of the expansion in
money supply in 2006 was due to a stronger demand External Position
for credit by the private sector, in response to increased
economic activity. The government is pursuing a development strategy
based on export growth and increasing inward direct
Inflation tended to trend downwards in 2006 despite investment. With this in view, Ghana developed a
the lagged effects of increases in petroleum prices in National Trade Policy in 2005, which aims to enhance
the latter part of 2005, which were largely offset by a international competitiveness and secure greater market
relatively stable exchange rate and improved food access for Ghana’s products. In particular, the policy
supplies. The target of the single-digit inflation rate was seeks to promote regional integration within the
almost attained in 2006, as consumer price inflation Economic Community of West African States
declined to 10.5 per cent at the end of October 2006 (ECOWAS) through the harmonisation and reduction
from 14.8 per cent at the end of December 2005. of tariffs and non-tariff barriers to trade. At the same
Moreover, the core measures of inflation remained time, Ghana, together with other West African countries,
between 3 and 9 per cent in 2006, indicating low is engaged in the negotiation of the WTO-compatible
underlying inflationary pressures. Economic Partnership Agreement (EPA) with the

Ghana
European Union (EU) to replace the existing non- years. In 2006, the trade deficit increased from 23.5 per
reciprocal preferential trade regime in the Cotonou cent of GDP in 2005 to 25.7 per cent of GDP. One
Partnership Agreement (CPA). factor behind the recent widening trade deficit has
been a higher than expected oil import bill due to the
Ghana’s current account balance has consistently sharp increase in the average price of crude oil. Also,
been in deficit, and this deficit increased sharply from the non-oil trade deficit has widened in recent years
7.1 per cent of GDP in 2005 to 11.7 per cent of GDP due to an appreciation of the real exchange rate of the
in 2006. Developments in the current account balance local currency, which has made export diversification
largely reflect fluctuations in merchandise trade, which rather difficult. Ghana continues to depend largely on
have been characterised by widening deficits in recent a few primary commodity exports, especially cocoa

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -11.1 -10.3 -17.1 -23.5 -25.7 -25.1 -26.0

Services -1.8 -4.0 -4.4 -1.3 -1.2 -2.3 -2.5
Factor income -2.0 -1.5 -1.9 -1.5 -1.3 -0.7 -0.3
Current account balance -5.0 2.4 -2.7 -7.1 -11.7 -11.6 -13.4
http://dx.doi.org/10.1787/678451732837
291

160
140
120
100
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/632106841355

Ghana
and gold, and thus remains vulnerable to external terms Ghana was rated among the top ten reformers in
of trade shocks. As a result exports are projected to facilitating business. The government is enhancing this
remain flat in 2007 and 2008, with the current account progress by pursuing the development of a national
deficit remaining high. index that tracks the costs and burdens of doing business,
as well as improving the process of reform itself, by
In spite of the recent deficits on the current account, including more stakeholders in order to obtain useful
Ghana’s overall balance of payments has been in surplus, inputs and to build consensus and ownership.
driven primarily by payments on the capital account.
In 2006, the surplus on the balance of payments rose The government has also for some time now been
to $155 million from $110.0 million in 2005. This developing a Regulatory Impact Assessment tool to
significant injection to the capital account came largely analyse the costs and benefits of new policies and
from private capital inflows. Ghana’s international regulations. In 2007, the Regulatory Impact Assessment
reserves position stood at $1.65 billion in October tool will be formalised and implemented.
2006, which translated into 3.3 months of import
cover for 2005. Further to this, the implementation of the Private
Sector Development Strategy is continuing with the
Ghana’s total external debt at end-2005 stood at establishment of Client Service Units to enhance the
$6.3 billion, representing about 59 per cent of GDP, delivery of public services under the Public Sector Reform
with a debt service ratio of 6 per cent. The composition Programme. Other activities being pursued under the
of debt remained largely unchanged in 2006, with strategy include the establishment of a one–stop–shop
approximately 63 per cent of the debt owed to to fast-track the registration of investments.
292 multilateral creditors, 29 per cent owed to bilateral
creditors, and the remaining 8 per cent representing The government has reinvigorated its stalled
commercial debt. The total debt was reduced by two privatisation programme and is restructuring some
thirds to $2.1 billion at end-September 2006, under of the state enterprises as a first step towards
the Multilateral Debt Relief Initiative (MDRI) of the divestiture. As part of this process, relevant state-
IMF, World Bank and the African Development Bank. owned enterprises (SOEs) have been given full
This debt burden fell to a low 13 per cent of GDP in commercial mandates and autonomy to borrow from
2006 with a debt service ratio of only 2 per cent. local and international capital markets. In 2006 the
government began a review of the mandate of the State
Enterprises Commission to realign its functions
Structural Issues within this new framework.
Recent Developments Ghana’s recent financial sector reforms have put in

place much of the necessary payments system
Ghana’s current structural reforms put emphasis infrastructure for the development of efficient financial
on improving public services and promoting private markets. The government is pursuing structural changes
sector development. Under the GPRS II, private sector that will help to maintain the health and stability of
development is a key strategy for accelerated growth, the financial system and improve the transmission
and improving the business environment is seen as a mechanism of monetary policy. To this effect, various
crucial cornerstone to this. measures were submitted to Parliament in 2006. These
Ghana’s recent efforts at improving its business include the Foreign Exchange Bill, the Credit Reporting
environment has begun to yield positive results as the Bill, the Central Depository System Bill, and the Anti-
country’s aggregate rank listed in the 2006 World Bank Money Laundering Bill. The Foreign Exchange Bill
Doing Business Report was 94th out of 175 countries, institutionalises the current liberal external trade and
compared to last year’s rank of 102nd. In addition, payment regime, and removes the documentation and

Ghana
bureaucratic requirements associated with exchange through several countries, there is presently no
controls. The Credit Reporting Bill provides for a mechanism for co-operation to jointly develop the
registry to increase information on the creditworthiness river. Ghana has recently made a call for a joint
of potential borrowers. The Central Depository System commission to manage the basin for sustainable and
Bill ensures the certainty and safety of titles to equities equitable development.
and government debt instruments and can thereby
help foster the development of the stock market. The The production and delivery of water and sanitation
Anti-Money Laundering Bill protects the integrity of in Ghana has largely been the government’s
the financial system from criminal abuse. responsibility. The Ghana Water Company Limited
(GWCL) is the lead agency for developing, operating,
The government has sought to foster the monitoring and regulating water and sanitation. The
development of the local bond and stock markets. private sector’s role is largely confined to the design and
Recent measures include the listing of medium-term construction of water supply systems. It also participates
government securities, the establishment of a central in water vending, which involves private water tanker
securities depository, the automation of the Ghana operators selling water. To ensure efficiency and public
Stock Exchange, and the commitment to use the accountability in the water sector, several regulatory
Ghana Stock Exchange as the preferred medium for institutions have also been set up. These include the
the divestiture of state-owned enterprises. While Public Utility Regulatory Commission (PURC) that
private sector companies have increasingly been using regulates tariffs and water supply operational
the capital market to fund their long-term performance; the Water Resource Commission (WRC),
investments, there has been a noticeable absence of which is responsible for the regulation and management
public sector institutions. Accordingly, in 2007, the of water resources; the Ghana Standard Board, which 293
government is putting significant resources into is responsible for the development of drinking water
preparing key public sector institutions, such as the standards; the Environmental Protection Agency that
utilities, universities and municipal and district deals with environmental regulation of water supply
assemblies, to meet their long-term funding needs operations; the Ghana Water Company Limited which
from the domestic capital market. has ownership of urban water supply assets, monitoring
of water supply operations and development, and
Access to Drinking Water and Sanitation expansion of urban water supply systems; and the
Community Water and Sanitation Agency, which is
Ghana is fairly well-endowed with water resources. responsible for the facilitation of community water
There is more than enough surface water nationally to and sanitation services through District Assemblies.
meet the estimated national demand of about
321 million m3. The Volta lake system drains about In Ghana, lack of access to clean water and
70 per cent of the total land area of Ghana, with the sanitation systems is a central public health concern,
Volta River flowing directly into the sea. The Volta contributing to 70 per cent of diseases in Ghana.
Lake – the largest man-made lake in the world – covers There is substantial variation in access to clean,
approximately 8 482 square kilometres. The southwest affordable water and sanitation, depending on income,
and southeast parts of the country, which fall outside between rural and urban areas, and across regions in
the Volta drainage basin, are drained by many large rivers Ghana. According to the Ghana Water Sector
and streams that also flow directly into the sea. These Restructuring Secretariat (WSRS), in 2005 only 46 per
rivers are used for drinking water, fishing, agricultural cent of the total population had access to piped water.
and industrial purposes. The Volta river basin is shared The figure falls to 22 per cent for those classified as
with Cote d’Ivoire, Burkina Faso, Mali, Togo and poor. Uninterrupted access to treated and piped water
Benin, while the basins of the big rivers Bia and Tano is only significant in some urban areas. Average urban
are shared with Cote d’Ivoire. While the Volta runs access is 46 per cent, while in rural areas only 35 per

Ghana
cent of the population have access. Access to proper established to formulate appropriate pricing
sanitation is equally dismal. Again according to the mechanisms. The government has also developed a
WSRS, the percentage of the population with access proposal for private sector participation (PSP) in the
to improved sanitation facilities is approximately 40 per production and delivery of water and sanitation. The
cent in urban areas and 35 per cent in rural areas. To PSP proposal intends to lease the 74 urban water
meet the Millennium Development Goals, water systems across the country to two private water
supply coverage for the urban areas will have to be companies, with an expected injection of approximately
increased to 88 per cent and sanitation coverage must $140 million for rehabilitation, renewal and
be increased to 80 per cent. improvement of the water systems. The proposal has
been criticised, however, for separating water delivery
Households without access to clean water use a from sanitation services. Moreover, considerable public
variety of less reliable and hygienic sources, and often resistance has been demonstrated against what is
pay more. Pollution is the most serious threat the considered the inappropriate privatisation of water;
sustainability of water resources. The rising demand for consequently, the government has not been able to
water resulting from the expansion of the chemical, oil, make any headway with this proposal.
mining, and other water-consuming industries, along
with urban growth and farming, threatens to outpace The government is also shifting responsibility for
the available supply. maintenance and operation of both urban and rural
water supply to the respective communities. To this
The main constraint to the improvement of water end, Community Water and Sanitation Boards have
access and sanitation in Ghana is lack of financial been established in towns, and Sanitation Committees
294 resources. The investments required for an adequate have been set up in rural areas. Under this new
water supply and sanitation infrastructure are estimated arrangement, most issues that were previously
at $1.3 billion for the rehabilitation and expansion of managed from centralised departments in Accra, or
urban water infrastructure alone. As a result of through regional offices, are now being devolved to
inadequate funding, maintenance and expansion of the districts. A Community Water and Sanitation
water and sanitation services has not kept pace with Agency (CWSA) has also been created to assist the
population growth. Most of the existing network was communities in the development, operations and
installed at the time when cities and towns were maintenance of water systems. Under the Community
approximately half their current population sizes. Managed Systems (CMS), towns and villages will
According to GWSC estimates, almost a third of water own and manage the water and sanitation systems,
supply systems in the country are non-functional, set their own rates and maintain their water systems
with the rest operating substantially below designed with assistance from the CWSA.
capacity. Other constraints to improving water and
sanitation include inadequate tariffs to ensure full In recent times, donors and non-governmental
cost-recovery, especially in rural areas, lack of co- organisations (NGOs) have also been instrumental in
ordination and supervision of donor and NGO financing the production and delivery of water and
activities and lack of community participation in local sanitation services in Ghana, especially in the rural
water and sanitation projects. communities. The main actors in water-financing
include the World Bank, which, over the two decades
The government now appears to be tackling some up to 2000, invested $152.4 million in improving
of the major constraints to improving the water supply Ghana’s urban water supply infrastructure. The
and sanitation situation. Since 2003 the government government must ensure that such investments yield
has phased out the subsidisation of water services and the desired results in raising the operational efficiency
has initiated moves towards full cost-recovery. A Public and performance of water and sanitation delivery
Utility Regulatory Commission (PURC) has been systems in the country.

Ghana
Political Context and Human

Resources Development An increasing rate of unemployment and
underemployment has been a feature of the labour
Ghana remains a rare example of a maturing market in Ghana in recent times. It is essentially a
democratic culture in West Africa, where many countries reflection of the low labour absorption capacity of the
have experienced civil wars, coups or sustained incumbent economy and lack of relevant skills of the majority of
rule. The government has continued to promote the workforce. The slow growth of formal sector
democracy and good governance. One of the major employment is also due to the combination of the
indications of determination to pursue good governance shrinking role of government in economic activity
has been its unreserved commitment to the African Peer along with the disappointingly slow growth of the
Review Mechanism (APRM). Ghana reached the ultimate formal private sector. Indeed, the failure of GDP to grow
milestone of her APRM aspirations when President strongly enough and to be sufficiently labour-intensive
Kufuor became the first Head of State in Africa to be to absorb the increasing labour force, which has almost
peer-reviewed by his colleagues at the 4th Summit of the doubled since 1984, has been the main cause of
APR Forum in Khartoum, Sudan in January, 2006. unemployment. Overall unemployment is estimated
at 18.4 per cent as of 2006. The rate among youth is
Nonetheless, substantial governance problems relatively high at 20 per cent (17 per cent for males,
remain. Although Transparency International rates 23 per cent for females) as is the rate in urban areas.
Ghana as one of the least corrupt countries in Africa, There has also recently been growing unemployment
the corruption perception rating has slipped back to among polytechnic and university graduates. The lack
levels last seen when the Kufuor Administration came of employable skills is cited as the main reason behind
to office in 2000. In particular, increasing the inability of graduates to secure jobs, and this is a 295
decentralisation in service delivery has helped to create real tragedy given the overall scarcity of human capital
additional opportunities for corruption. The political in Ghana. The rate of underemployment is equally
pressures related to the upcoming 2008 parliamentary high at 16 per cent, with very little difference between
and presidential elections are also giving rise to fears male and female rates. The growing incidence of
that the government’s commitment to improving joblessness and informality in the labour market requires
governance could slip. It is becoming increasingly clear a strong effort from policy-makers to promote
to observers that aspirants to the Presidency are utilising appropriate skills development and adopt employment-
any means, including corrupt ones, to gain advantage. friendly economic policies.
The problem for the government is how to check the
many aspirants from the ruling party who wish to Government objectives on health matters under
succeed President Kufuor in 2008. the GPRS II continue to be the bridging of equity
gaps in access to quality healthcare and nutrition
Ghana’s consistent growth of approximately 5 per services, ensuring sustainable financing arrangements
cent per annum over the last 15 years has resulted in that protect the poor, improving health infrastructure,
one of the fastest rates of poverty reduction in Africa. and enhancing efficiency in service delivery. Government
Acute poverty – income of less than $1 a day – has fallen efforts to improve healthcare delivery appear to have
from about 51 per cent in the early 1990s to 35 per improved both access to healthcare facilities and the
cent in 2006. Most poverty is still rural, although the actual quality of care.
figures available indicate a slight increase in urban
areas, from 8 to 9 per cent in 2006. Relentless Malaria remains the main cause of mortality and
urbanisation is shifting the pattern of poverty, with morbidity in Ghana, accounting for about 21 per cent
youth facing the most difficulty, as Ghana struggles to of the under-5 mortality rate and 40 per cent of
create formal sector jobs and provide services for the outpatient morbidity. The government appears to be
growing urban population. tackling this problem by making efforts to reduce the

Ghana
burden of malaria. It launched a new Malaria Drug gender parity in schools. In its Education Strategic
Policy in 2005 and, under its Intermittent Prevention Plan, the government is providing free and compulsory
Treatment strategy for malaria, adopted the new basic education, defined as primary school and Junior
amodiaquine-artesunate drugs combination for Secondary School (JSS). The government’s objective
prevention and treatment. In 2006 the Ghana Health is to achieve Universal Primary education by 2015 and
Service changed the recommended dosage of this drug gender parity in primary school by 2008.
for malaria, following controversy over side effects. In
2006 the government also scaled-up Insecticide Treated The extension of the Capitation Grant Scheme in
Nets (ITNs) distribution across the country. Over 2005, which covers fees and levies for such items as
5 million ITNs were procured for distribution and ITN cultural activities, sports and school development to all
utilisation increased by 32.7 per cent for pregnant basic public schools, has boosted enrolment rates. As
women and 31.0 per cent for children aged under-five. a result of these initiatives, enrolment at basic level
increased by 16 per cent and gross enrolment rates at
In 2006, the government achieved its target of primary level grew from 87.5 per cent in 2004/05 to
reducing the prevalence rate of HIV/AIDS to 3.1 per 92.1 per cent in 2005/06. In addition, the Gender
cent; the recorded prevalence rate was 2.7 per cent, as Parity Index, by which the government measures gender
more Anti-Retroviral Therapy (ART) sites became parity in primary schools, also grew from 0.93 in
operational. By end-2006 the government had a two- 2004/05 to 0.95 in 2005/06.
year stock of Anti-Retroviral Drugs.
In order to ensure equity in the supply of teachers,
Nonetheless, the exodus of doctors and other health and to improve the quality of teaching and learning at
296 service personnel continues to be a problem for health all levels throughout the country, an effort was made
service delivery. Available data indicate that between to deploy more teachers to the three regions in the
1999 and 2005 around 50 per cent of doctors trained North, thereby reducing the wide regional disparities
in Ghana left the service. The government has used in pupil/teacher ratios. Meanwhile the Ministry of
incentives to try to stem this tide without much success. Education also continued to attract teachers to remote
Incentives include the distribution of saloon cars to areas by providing incentive packages including bicycles,
doctors working in deprived areas and enhanced salaries radios, accelerated promotion and access to training.
and pensions. As an interim measure, the upgrading of untrained
teachers continued. In 2006, 5 689 untrained teachers
The government is seeking to increase access to completed the first phase of the Untrained Teacher
education, improve the quality of education, and raise Training Programme.

Kenya
Nairobi
key figures
Kenya
SUDAN ETHIOPIA
Da
Lokichokio ou
a
Lake
Turkana Moyale Mandera
Kalekol
Lodwar
El Wak
Marsabit
UGANDA
Maralal
Kitale SOMALIA
Kampala

Eldoret
Bungoma Issido Liboi

Nanyuki Meru
Kisumu

Nakuru
Lake Garissa
Victoria Kericho
Kisii Embu
Thika
Migori
Narok
NAIROBI

Machakos
Tana
Magadi
Makindu
Lamu
Namanga
TANZANIA Tsavo INDIAN
Malindi
Arusha Voi
OCEAN

town > l million inhabitants Mombasa

500 000 - 1 000 000
100 000 - 500 000

< 100 000 main airport
secondary airport

major road
secondary road commercial port
railway petroleum port

track fishing port 0 100 km
I N 2005, THE KENYAN ECONOMY, with most sectors expenditures are being restructured from recurrent to
recording accelerated growth, sustained the momentum development sectors (infrastructure, education, health,
that had started in 2003. Real Gross Domestic Product etc.) with the goal of attaining 7 to
Governance problems
(GDP) grew by 5.8 per cent in 2005 compared with 9 per cent of GDP on development-
persist but reforms are
4.9 per cent in 2004, and it is estimated at 5 per cent sector expenditure in the medium term.
beginning to take hold
in 2006. This economic growth is expected to be Controlling recurrent expenditure to
and the development
maintained in the medium term. free up resources for increased
of the private sector
development expenditure should be
is on course.
Despite the increase of government expenditures achieved thanks to selected cuts, such
and the fiscal deficit of 2005/06, the overall fiscal as in the civil-service wage bill, and better management
situation is favourable, as the government succeeded of public finances.
in improving its revenue collection and in keeping the
fiscal balance at a manageable level. The fiscal policy Monetary policy will continue to aim at maintaining
for the medium term continues to seek increased inflation below the official 5 per cent level and at
spending and revenue while containing the budget preserving stability in the foreign-exchange market.
deficit at 3.5 per cent of GDP. In addition, public The monetary authority is on track in the area of
299

■ Kenya - GDP Per Capita (PPP in US $) ■ East Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Kenya - Real GDP Growth (%)
7 3500
6 3000
5 2500
4 2000
3 1500
2 1000
1 500
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/355447083017

Kenya
containing inflationary pressures, although the inflation and communications. Overall, the economy withstood
rate was quite high in 2006, driven basically by food the impact of higher oil prices rather well.
and energy prices. Inflation is expected to ease towards
the targets in 2007 and 2008. Interest rates were fairly The economy-wide reform efforts currently
– and unusually – stable in 2005/2006. underway and the resulting stable macroeconomic
environment are expected to generate sufficient
The Kenyan government has sustained its emphasis momentum for growth to be maintained at about the
on development of the private sector and has taken same rate in both 2007 and 2008 (estimated at 5.3 and
important measures to enhance the investment 5.1 per cent, respectively).
environment for private-sector activities. These measures
include improving infrastructure – such as the road The implementation of the Economic Recovery
network (which is still a key challenge), the ports, and Strategy for Wealth and Employment Creation (ERS)
rail transport – providing reliable and affordable energy, will be completed by the end of 2007. In the meantime,
and developing information and telecommunications the government intends to finalise Kenya Vision 2030,
infrastructure. The government has also strengthened which will be the basis for further policy development.
the financial sector, improved public expenditure and It will be based on three pillars – economic, social, and
financial management, and privatised state-owned political – and its ambitious goals are: to maintain
enterprises to enhance Kenya’s external competitiveness sustained 10 per cent annual economic growth for the
and reduce pressures on the budget. In addition, it has next 25 years; to build a just and cohesive society
eased the legal, regulatory and institutional constraints enjoying equitable social development in a clear and
that affected the private sector adversely and delayed secure environment; and to build an issue-based, people-
300 the privatisation process. centred, result-oriented and accountable democratic
political system.
Constitutional and legal reforms as well as
deepening macroeconomic and structural reforms are The agricultural sector continues to play a dominant
considered key pillars for attaining the goals of “Kenya role, contributing significantly to increasing food
Vision 2030” to transform the country into a medium- security, income generation, employment creation and
income country within 25 years. Although the industrial development within the framework of the
authorities have increased the democratic space Investment Programme for the ERS (IP-ERS). The
significantly since 2002, governance issues are still sector accounted for 25 per cent of GDP in 2005 and
hampered by the corruption and political manipulation grew at an annual rate of less than 6 per cent in 2006
allowed by inadequacies in the legal framework to compared with 6.8 per cent in 2005. This growth was
fight corruption at high levels in the system. This driven by improved performance in cereals, horticulture
continues to affect the image of the government and dairy sub-sectors thanks to adequate rainfall in
amongst development partners, and if it is not 2005 and 2006, a performance all the more impressive
contained, it could slow down the pace of economic ever though a drought affected the livestock sub-sector
development that the country has recently realised. in some parts of country in 2005.
A number of structural reforms have been

Recent Economic Developments implemented since 2003, aimed at improving efficiency
and productivity in the coffee, pyrethrum and sugar,
Kenya had 5 per cent GDP growth in 2006, and co-operative sub-sectors.
compared to 5.8 per cent in 2005, continuing the
buoyant growth that had begun in 2003. The key These sector reforms include the review and
sectors driving this growth were agriculture, construction harmonisation of the legal, institutional and regulatory
and building, manufacturing, tourism, and transport frameworks. The share of budgetary resources allocated

Kenya
Other services Agriculture
27.3% 25.1%
4.5% 13.5%
Government services Manufacturing
10.9%
6.5%
Transport and communications 12.2%
Other industry

http://dx.doi.org/10.1787/246703247558
to the agriculture sector was projected to increase production. The sugarcane and milk sub-sectors also
sharply from KES (Kenyan shillings) 18.6 billion registered an improved performance in 2006.
(5.3 per cent of total resources) in 2005/06 to
KES 33.5 billion (7.3 per cent of total resources) in The government has continued to take measures
2008/09. Other incentives initiated in 2006 to promote to attain food security. However, these efforts have
productivity in the agricultural sector include zero- been undermined by frequent droughts and/or floods.
rating of tractor tyres, agricultural tractors and semi- The self-sufficiency ratio (SSR) for maize ranged
trailers for agricultural tractors, as well as transport of between 84 per cent and 106.3 per cent between 2000
unprocessed agricultural and agro-forest produce. Efforts and 2005. The import-dependency ratio (IDR) for
are also being made to strengthen land management cereals has been on the decline, ranging from 19.5 per 301
and the land-tenure system, support fisheries, forestry cent to 31.5 per cent between 2000 and 2005. The IDR
and mining, and protect the environment and natural for maize has consistently stood below 20 per cent. This
resources. means the country’s production of maize almost meets
domestic demand. Maize production has been increasing
In 2006, the production of major crops displayed as a result of the incentive of good prices offered to
mixed performance. Improved weather conditions in farmers. It is estimated to have increased from 32 million
the second half of 2006 moderated the adverse effects bags in 2005 to more than 33 million bags in 2006.
of the drought experienced during the first quarter of Most producer prices for the majority of agricultural
the year. Tea production declined in 2006 by 16 per commodities recorded a gradual increase during the year,
cent. However, average tea auction prices increased supported by a revival of farmers’ institutions such
substantially by almost 40 per cent in 2006 as a as the Kenya Co-operative Creameries or the Kenya
consequence of reduced supply and improved quality. Meat Commission.
Similarly, coffee output was almost at par with
production in 2005 while the prices increased by The manufacturing sector continued to respond
11.2 per cent. positively to the reforms identified in the 2004-05 IP-
ERS. The reforms include trade liberalisation, financial
In the horticultural sector, flower production deepening, facilitating the use of technology by
improved by 5.7 per cent, while fruit and vegetable improving licensing procedures aimed at expanding
production for export decreased by 2 per cent and growth and employment-generating capacity in the
1.5 per cent respectively in 2006. Export earnings from sector. The key growth targets for the sector for the IP-
the sector registered marginal improvement. The ERS period include: achieving an average growth rate
2006/07 budget proposed tax measures to support the of 8.6 per cent annually; increasing employment in
horticultural sector and make its products more medium and small enterprises; and formalising the
competitive by shifting the focus towards more fruit informal micro- and small-enterprise (MSE) sector.

Kenya
The manufacturing sector accounted for 14 per in the manufacturing sector. In the 2006/07 budget,
cent of GDP in 2005, up from 9.9 per cent in 2004. it enhanced the tax incentives first introduced in
In 2005, the sector recorded 5 per cent real growth 2003/04, which included duty waivers on capital goods,
compared with 4.5 per cent in 2004 as a result of plants and equipment. In addition, 17 trading licenses
increased domestic, as well as external demand. Factors were removed in 2005/06, an additional 118 licenses
contributing to growth in the sector included tax were marked to be eliminated in 2006/07, together with
exemptions on some imports for intermediate import duties on selected intermediate inputs.
consumption in the 2006/07 budget and enforcement
of anti-dumping measures within the East African The tourism sector is a major component of the
Community (EAC) and Common Market for Eastern service sector, which accounts for about 50 per cent of
and Southern Africa (COMESA) regions. In 2005, GDP and has continued to exhibit rapid growth. This
however, output was constrained by increases in is due in part to measures taken by the government:
production costs subsequent to the rise in oil prices, to foster private-sector partnerships for the development
appreciation of the Kenya shilling resulting in lower and implementation of a co-ordinated strategy; to
export earnings and poor infrastructure. attract tourists from a wider range of countries; to
diversify tourist attractions; to expand the benefits to
In 2006, output from the manufacturing sector the local population; to protect the environment; and
improved thanks to increased output from key sub- to improve quality and standards.
sectors. In 2006, the production of beer and cigarettes
increased by 7.4 per cent and 21.3 per cent, respectively. In 2006, combined tourism earnings from
international and domestic sub-sectors grew by 20 per
302 Consumption of electricity grew by 5.2 per cent in cent compared with 24.7 per cent in 2005. International
2006, in line with the increased level of economic arrivals increased to 1.7 million, up from 1.5 million
activity. The increase in supply to meet this demand in 2005 and 1.4 million in 2004. In 2006, tourist
reflected good water supply to hydroelectric dams and arrivals from all markets recorded improvements with
increased generation from thermal sources. significant increases from Asia, America and Europe of
7.9 per cent, 14.8 per cent and 13.7 per cent,
The government took several measures to improve respectively. This growth is linked to an improved
the business environment and stimulate production marketing of tourism in non-traditional markets like

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)
Gross capital formation

Public 16.8 16.8 15.9 12.5 8.9
Private 4.9 4.6 5.0 11.5 10.0
11.9 12.2 20.0 12.8 8.6
Consumption
Public 90.0 93.9 4.8 3.9 4.4
Private 16.5 17.1 3.8 4.1 4.2
73.5 76.8 5.0 3.9 4.4
External sector
Exports -6.8 -10.7
Imports 20.5 26.7 3.8 4.5 5.0
-27.3 -37.4 5.6 2.2 2.5
http://dx.doi.org/10.1787/005222256585

Kenya
China, India, Japan and the local market. Diversification roll-out to rural areas along with aggressive marketing.
away from traditional tourism products to new ones Safaricom, a mobile provider in which the government
has also helped improve performance and future is a shareholder, is one of the fastest-growing enterprises
prospects in the sector. in Kenya.
The transport and communications sector The balance sheet of the state-owned Telkom
accounted for 11 per cent of GDP in 2005, recording Kenya, the fixed-line provider, is weak. However, the
real growth of 8.3 per cent in the year and making it enterprise has recently put out new products and
one of the fastest-growing sectors in the economy. This services. Fixed-line connections increased by more
rapid expansion was maintained in 2006. In the road- than 8 per cent in 2006 representing a 1 per cent
transport sub-sector, new motor-vehicle registrations increase in the penetration rate for this sector. Telkom
increased by 10 per cent in 2006. In the air-transport has boosted the performance of its existing network
sub-sector, a combination of factors, including positive by revamping the data-transfer technology known as
knock-on effects from tourism, caused the incoming Asymmetric Digital Subscriber Line (ADSL), as well
passengers through major border ports to rise by 7.5 per as by introducing three different prepaid cards with
cent in 2006, while outgoing passengers increased by different tariffs and download speeds. A corporate
6.2 per cent in the same period. Cargo through the port Voice Over Internet Protocol (VoIP) tariff and an
of Mombasa grew by 5 per cent in 2006. The Internet dial-up solution are also now offered amongst
Government has prioritised expansion through the other products.
improvement and maintenance of the road network to
support growth placed in the 2006/07 budget, The building-and-construction sector realised real
improvement of the business climate and the growth of 7.2 per cent in 2005, up from 4 per cent in 303
competitiveness of Kenyan products. 2004, and continued to record rapid growth in 2006.
Cement production, for example, increased by 6.1 per
Concessioning of the Kenya railways in cent in 2006. This was due in part to strong demand
November 2006 is expected to improve railway for residential housing in urban areas supported by
transport, which will facilitate faster movement of relatively low and stable interest rates and remittances
cargo through the port of Mombasa. Other measures from abroad. Other factors contributing to the sector’s
being taken to improve port efficiency include improved performance are the revival of several stalled
introducing private-sector participation in container- public-sector development projects and increased
terminal operations, dredging the channel to budgetary allocation for road construction and
accommodate larger vessels and introducing 24- rehabilitation activities.
hour operations. In 2006, further reforms were taken
to modernise and upgrade air transport at Jomo In collaboration with the government, international
Kenyatta International Airport, and other airports enterprises are undertaking oil exploration along the
and airstrips. This is expected to increase the volume coastal belt, which is divided into blocks held by several
of transit passengers with direct flights from North oil enterprises. In 2006, equipment arrived in Mombasa
America and Europe, improve general air safety, for prospective oil drilling off the Lamu Coast, where
increase revenue flow and promote tourism. an Australian drilling enterprise has estimated that
there is a 12 per cent chance of striking oil.
The telecommunications sub-sector displayed strong
performance in 2006 with the number of mobile The economy experienced several problems in
subscribers estimated to have increased to more than 2006. These included high oil prices, which increased
7 million, up from 5.6 million in 2005. The impressive production and transport costs and led to an
growth in airtime sales was driven by lower- acceleration of consumer-price inflation, and severe
denomination prepaid cards and expanded network drought that affected the livestock sub-sector adversely,

Kenya
especially in the arid and semi-arid land (ASAL) areas The overall budget deficit in 2005/06 was
during the first quarter of the year. Also, during the KES 55.2 billion, equivalent to 3.5 per cent of GDP
last quarter of 2006, the country experienced massive on a commitment basis compared with a surplus of
floods that displaced both people and livestock in KES 1 billion equivalent to 0.1 per cent of GDP in
areas prone to flooding, and destroyed roads and 2004/05. This deficit mainly reflected the expansionary
bridges in the affected parts of the country. The ravaging fiscal policy pursued in 2005/06, which includes a
floods in the North Eastern and parts of the Coast large increase in development spending. The fiscal
provinces during the fourth quarter of 2006 led to deficit is projected to decline to 1.4 per cent of GDP
deaths and infections associated with Rift Valley Fever, by the end of 2007/08.
as well as the imposition of quarantine and a ban on
the slaughtering of livestock in the affected areas. This In 2005/06, revenue collection and receipts from
was followed by immunisation campaigns targeting external grants amounted to KES 327.8 billion, under
mainly domestic animals kept by the nomadic the target of KES 360.7 billion. The shortfall was due
communities in these areas. in part to problems with the implementation of a new
customs computer system, which affected the collection
There was no major regional conflict affecting the of customs duties. Nevertheless, revenue collection and
country in 2006. The situation in Somalia, however, receipts of external grants increased by 7.6 per cent from
continued to affect the country through an influx of 2004/05 as a result of strong economic growth. Fiscal
refugees, new cases of diseases such as polio, which receipts as a percentage of GDP rose from 23.8 in
had been eradicated, and an increase in the prevalence 2003 to 24.2 in 2005.
of small firearms.
304 The public-sector wage bill as a percentage of fiscal
receipts was 58.2 per cent in 2005, down from 59.9 per
Macroeconomic Policies cent in 2004. Efforts are being made to lower it further
through the civil-service reform commission. Public
In 2006, the government undertook the mid-term investment financed from domestic resources as
review of the 2003-07 ERS to highlight the policy a percentage of fiscal receipts improved significantly in
implementations achieved from July 2003 to June 2005, rising to 26.8 per cent from 17.3 per cent in
2006. The review also made recommendations on key 2004. This improvement appears to have been due to
areas of the economy that need to be addressed in the the operation of the Constituency Development Fund
remaining period of ERS. (CDF), a programme promoting grassroots development
across the board. Differences between actual and budgeted
Fiscal Policy expenditures narrowed in 2005/06 compared with
2004/05, indicating improved budgetary management.
Fiscal policy is guided by the Public Expenditure
Review (PER) and the medium-term expenditure Indirect and direct intervention measures have been
framework (MTEF). These establish certain ceilings, undertaken to counter the rise of oil prices. One measure
ring fence core poverty programmes and imply a strong was to publish the pump prices of various oil marketers
revenue effort. The growth of total expenditures is to in order to promote consumer awareness and
be restrained and the composition of expenditures competition. In addition, the state oil enterprise
changed to reduce the share of non-productive recurrent (National Oil Corporation) opened more retail outlets
expenditures and increase the share of operations-and- with an aim to increase competition and thus maintain
maintenance and capital expenditures. In addition, the some downward pressure on prices. However, the
domestic debt is not to exceed a sustainable level. The government has wisely chosen to allow the increase in
medium-term target for domestic debt is 20 per cent international oil prices to be fully passed through to
of GDP. domestic prices.

Kenya

1997/98 2002/03 2003/04 2004/05 2005/06 2006/07(e) 2007/08(p)
Total Revenue and grantsa 21.4 20.8 22.4 22.6 23.0 22.5 22.2
Tax revenue 18.4 18.1 19.0 19.4 19.0 18.6 18.4
Grants 0.7 1.4 1.3 1.1 2.2 2.0 1.9
Interest on public debt 4.9 3.3 2.5 2.3 2.4 2.3 2.3
Primary balance 3.8 -0.2 1.5 2.4 -1.0 1.1 0.9

Overall balance -1.1 -3.5 -0.9 0.1 -3.5 -1.2 -1.4
Source: Domestic authorities' data; estimates (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/028710663648
Monetary Policy September 2005. This reflected increased credit to the

government by the banking system to finance
Monetary policy is under the responsibility of the government deficit. Meanwhile, the growth of credit
Central Bank of Kenya (CBK). It seeks to maintain a to the private sector slowed for most of the period.
rate of inflation that does not exceed that of its trading
partners, which was expected to be less than 5 per cent In August 2005, the government established a 305
in 2006/07. The measure of inflation, which includes Monetary Policy Advisory Committee (MPAC) with
food and oil, rose from 11.9 per cent in June 2005 to a mandate to advise the CBK on monetary policy. The
14.6 per cent in November 2006, mainly as a result of MPAC worked with the CBK to develop a framework
increased prices of food and non-alcoholic drinks, and for the Central Bank Rate (CBR), which replaces the
oil. However, the measure of underlying inflation, 91-day Treasury Bill (TB) as benchmark rate and was
which excludes food and oil, declined from 8.2 per launched in May 2006. The implementation of the CBR
cent in June 2005 to 4.4 per cent in November 2006. within the monetary programme targets the quantity
This measure of inflation remained stable in 2006. of money. The current CBR is 10 per cent, up from
The Consumer Price Index (CPI) inflation rate is the initial rate of 9.75 per cent. Interest rates remained
estimated at 14.48 per cent in 2006 but is projected moderate with the 91-day TB discount rate down from
to decline considerably in 2007 and 2008 to stabilise a high 8.68 per cent in April 2005 to a low 6.6 per cent
at 3.64 and 3.75 per cent, respectively. in June 2006.
In the year to September 2006, the broad money The Kenya shilling exchange rates remained fairly
supply (M3) increased by 17.4 per cent compared with stable in 2006, strengthening marginally against the US
11.8 per cent in September 2005. In this period, dollar at KES 72 compared to KES 76 in 2005. The
currency outside the banking system increased by shilling is projected to depreciate in the medium term
15.8 per cent from 5 per cent in August 2005, which to 74-75 against the US dollar.
was above the 12.1 per cent target. The net foreign assets
of the banking system expanded by 27.8 per cent in The monetary policy for 2006/07 will continue to
the year to September 2006 compared with 34.7 per be directed towards attaining and maintaining
cent in the year to September 2005, while net domestic underlying inflation below 5 per cent. In line with this
assets expanded by 13.1 per cent in the twelve months goal, M3 is set to grow by 10 per cent by June 2007
to September 2006, compared with 4.6 per cent in while reserve money is also programmed to expand by

Kenya
10 per cent. With the stable low interest rates, growth increased substantially in 2005 but not enough to
of domestic credit to the private sector is set to range match the increase in the visible trade deficit.
between 10 per cent and 12 per cent.
In 2005, horticulture, tea and coffee continued to
External Position be the leading export earners accounting for 49.8 per
cent of the total domestic export earnings. Export
The deficit on current account increased to 2.6 per earnings improved to KES 168.4 billion in January to
cent of GDP in 2005, compared to 2.2 per cent of GDP September 2006, following increased earnings from
in 2004, reflecting in part an increase in the oil bill and tea, manufactured goods, horticulture, oil products
moderate growth in non-oil imports, which together and coffee exports. The values of tea, coffee and tobacco
exceeded a sizeable increase in export earnings. The exports rose by 14.7 per cent, 1.1 per cent and 69.1 per
deficit is estimated at 2.8 per cent of GDP in 2006 and cent, respectively, in January to September 2006,
projected to reach 3.4 per cent in 2007 before easing compared with the same period in 2005. While tea and
to 2.4 per cent in 2008. Net earnings from services, coffee exports fetched higher prices, export prices for
which include tourism earnings and unilateral transfers, some horticulture products declined.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -7.2 -7.6 -10.1 -11.6 -10.1 -8.9 -8.2

306 Services 1.0 3.4 3.8 4.0 3.3 3.1 3.3
Factor Income -1.2 -0.6 -0.8 -0.6 -0.5 -0.4 -0.4
Current account balance -3.4 1.0 -2.2 -2.6 -2.8 -3.4 -2.4
Source: Domestic authorities' data; estimates (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/076116124814
The import values of crude oil and oil products the partner states undertook to eliminate tariff and
increased by 12.1 per cent and 7 per cent, respectively, non-tariff barriers amongst themselves, simplify and
and jointly accounted for 22.7 per cent of the total harmonise trade formalities, produce and exchange
import expenditure in 2005. Industrial machinery and customs and trade statistics and information, all in
road motor vehicles accounted for 17 per cent of the order to create the most favourable environment possible
total import bill. for the development of regional trade.
The Protocol establishing the East African Customs In 2005, capital and financial accounts recorded
Union came into force on 1 January 2005. The key a net surplus of KES 57 862 million compared with
objectives of the Customs Union as provided under the a net surplus of KES 18 964 million in 2004. The
Protocol is: to further liberalise intra-regional trade in increase was attributed to increased long-term loans
goods on the basis of mutually beneficial trade to the private sector, and capital transfers to the
arrangements amongst the partner states; to promote general government.
efficiency in production within the Community; to
increase domestic, cross-border and foreign investment The government’s aim is to reduce the domestic-
in the Community; and to promote economic debt stock from 22 per cent of GDP in 2003/04 to
development and diversification in industrialisation in 20 per cent by 2007/08. In addition, the net present
the community partner states. To achieve these objectives value of external debt was to be contained at around

Kenya
27 per cent of GDP for the medium term, thereby The Government has consistently maintained a
leaving the total debt ratio below 50 per cent of GDP. sound and timely debt-servicing policy. Annual debt
This implies a narrowing of the fiscal deficit (including servicing charges decreased from KES 114.9 billion in
grants) to about 1 per cent of GDP in 2007/08 from 2003/04 to KES 112.2 billion in 2004/05, while receipts
2.6 per cent of GDP in 2004/05. on loan repayments and interest registered a substantial

45
40
35
30
25
20
15
307
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/105101125116
increase from KES 719.4 million in June 2004 to Structural Issues

KES 1.7 billion in June 2005. External-debt-service
payments as a percentage of export of goods and services Recent Developments
declined to 6 per cent on 30 June 2005 compared with
7.9 per cent a year earlier. This was due to the effect To improve accountability and efficiency in the
of a decline in external-debt servicing combined with management of public corporations and enhance the
consistent growth in exports of goods and services in role of the private sector as the engine of growth and
the past five years. poverty reduction, the government has initiated a
number of reform measures. These include: drafting
External debt dropped from KES 443.2 billion in the Privatisation Bill in 2003, which is currently in
June 2004 to KES 434.5 billion in June 2005. The parliament; introducing various reforms for
proportion of multilateral creditors in total external debt restructuring, rationalisation and good corporate
declined to 59.6 per cent at the end of September governance in public enterprises; identifying candidates
2006. Kenya has not benefited from debt cancellation for divestiture and privatisation and preparing strategies
under the Heavily Indebted Poor Countries Initiative and programmes for this process; and implementing
because its level of debt is considered to be sustainable. reforms covering budgeting, financial management,

Kenya
internal audits and performance contracts for state course of the year. From 2006/07 onwards, budget
enterprises. Moreover, 16 state enterprises were put on reallocations are to be limited to no more than 8 per
performance contract, effective from 1 October 2004, cent and will be disallowed for new programmes. No
and Kenya railway concessioning was completed in reallocations involving core poverty programmes will
December 2006. Prospective reforms include privatising be tolerated. In addition, a Public Procurement and
Kenya Ports Authority, including concessioning of Disposal Bill has been enacted and efforts are now
container terminals, bulk handling and conventional geared towards operationalising the autonomous
cargo, concessioning roads and other public works, Public Procurement Oversight Authority and making
continuing the liberalisation of the telecommunications sure that it is run efficiently.
sector and initiating the process for the privatisation
of Telkom Kenya. Public-service reforms aim to re-establish control
over the wage bill, address capacity constraints in key
In the financial sector, the role of the state in the ministries, and promote the creation of a more efficient
economy will be reduced through privatisation and/or public service. In this regard, the government has:
restructuring public enterprises and state-owned banks. introduced new wage-setting guidelines for public
The Microfinance Bill will be operationalised to improve employees; announced its intention to streamline the
the supervision of deposit-taking institutions. In terms and conditions of service for top management
addition, reforms in the insurance sector are to be in the government and state enterprises; taken steps to
strengthened, and a strategy for development finance strengthen capacity at all levels of government,
institutions is to be developed. particularly in ministries essential to the realisation of
the ERS, such as the Ministry of Finance; and
308 The Governance, Justice, Law and Order Sector committed to restructure a number of key ministries,
reform programme, referred to as GJLOS, is now in including the ministries of Roads and Public Works,
an accelerated phase of implementation as a four-year Education, Health and Agriculture.
medium-term Strategy ending in June 2009. GJLOS
will focus on improving the anti-corruption architecture The government identified in its IP-ERS the
by enhancing the investigative and prosecutorial capacity restoration and expansion of infrastructure (transport,
of the legislature, as well as by strengthening other water, energy, telecommunications and information
institutions in the criminal and civil justice systems. A technology) as one of the main pillars and challenges
medium-term anti-corruption strategy with measurable for its economic recovery programme. In this regard,
performance indicators is to be implemented. GJLOS the share of resources going to physical infrastructure
will address the systematic enhancement of public- is projected to rise from 19.2 per cent in 2005/06 to
sector integrity and accountability mechanisms in 21.6 per cent in 2008/09 with priority going to:
public institutions through the enforcement of codes expanding and improving maintenance of the road
of conduct and result-driven service charters. network and other public works; increasing access to
water resources; and increasing the availability, reliability
Reforms to strengthen public-expenditure and affordability of energy.
management aim at improving service delivery in the
key priority areas of health, education, infrastructure The challenges facing the sector include expanding
and agriculture. The reforms will focus on: meeting the road network; reducing the rehabilitation and
all 16 Public Expenditure Management Assessment maintenance backlog; strengthening road safety and
and Action Plan (PEMAAP) benchmarks by 2008/09 controlling overloading, and expanding private-sector
(on 31 December 2005, only 6 out of 16 benchmarks management and financing.
had been met); reducing the discrepancy between
approved budgets and budget outturns; and addressing For roads, activities include: formulation of a long-
the main causes of budget reallocations during the term road-sector strategy and a multi-agency model for

Kenya
managing responsibilities and financing for all types of to boost growth in the sector. To improve service delivery
roads; rationalisation of the number of agents responsible and efficiency in the public sector, the government has
for rehabilitation, construction and development of established operational information and
urban roads under the Kenya Roads Board Act; communications technology units in ministries, installed
completion of a road inventory and condition survey local area networks in Government buildings and
study; reducing the audit backlog for the road-levy implemented rural telecommunications projects by
fund and improving public information on the use of the Ministry of Information and Communications.
the fund; establishing a new road-safety authority;
enforcing axle load control limits; and launching a To maintain the competitive edge of the port of
national road-safety campaign. Selected targets for the Mombasa, its operations are to be privatised while the
IP-ERS period include rehabilitation of 2 815 kilometres port itself will remain the property of the state, which
under the Roads 2000 Programme, reconstruction of began operating 24 hours per day in February 2007.
150 kilometres of trunk roads per annum and the Equipment is to be modernised and a Maritime Sector
concessioning of up to 1 208 kilometres of trunk road Policy paper finalised. In addition, two new ferries will
during 2004-07. be purchased to increase safety.
To ensure efficient and secure air transport, security The authorities have redefined the role of the state
measures at airports are being improved, the from producer to facilitator in order to make the private
construction of a perimeter fence and the installation sector the engine of growth through preparation of a
of an intrusion-detection system are ongoing, while private sector development strategy (PSDS) paper
the refurbishment of the airport and civil-aviation spelling out the reforms needed to enhance efficiency
facilities has commenced. and international competitiveness. The PSDS paper was 309
launched in January 2007. An action plan detailing
In the telecommunications sub-sector, the short-and medium-term measures to improve the
government is to make a public offering in 2007 for investment climate has been finalised, as well as a
Safaricom shares, to be traded at the Nairobi Stock national export strategy action plan in five key sectors
Exchange. In addition, Telkom Kenya is also undergoing for implementation starting in 2005/06.
a major reorganisation aimed at strengthening its
balance sheet, by purging it of bad debts amongst other A number of measures to strengthen the financial
actions. The process of selling two of its loss-making system and create a predictable environment for private-
subsidiaries, namely Gilgil Technical Institute and the sector development are being implemented. These
Kenya College of Communications Technology, was reforms include: setting up the Bank Restructuring and
initiated in 2006. Privatisation Unit in the Ministry of Finance to develop
and implement restructuring reforms for state-owned
The awarding of a license to an additional operator banks; enacting the Micro Finance and Savings and
to operate in both fixed-line and mobile-telephony Credit Co-operatives Bills by parliament; capacity
networks is expected to lower prices and boost building to fight money laundering and for Combating
competition against the state-owned operator Telkom the Financing of Terrorism (CFT). These latter include:
Kenya, as well as mobile-service providers Safaricom gazetting the National Task Force on Anti-Money
and Celtel. The government also allowed all enterprises Laundering (AML) and CFT in 2003; drafting the
in the sector to offer the entire range of AML and Proceeds of Crimes Bill; drafting the
telecommunications services. Suppression of Terrorism Bill (2003) to criminalise the
financing of terrorism; and modernising the financial
Further liberalisation, significant investment in an system with, amongst others, the drafting of a specific
e-government initiative and zero rating of VAT on bill on Electronic Money Transfer, the amendment of
computer equipment, parts and accessories are expected the Banking Act and Central Bank Act to transfer all

Kenya
regulatory and supervisory roles from the Ministry of include: frequent droughts and floods, which reduce
Finance to the CBK, and the introduction of a new water catchment; rapid population growth, which leads
regulation tightening loan provisioning and classification. to the destruction of water-catchment areas through
land conversion and fragmentation; pollution from
Reforms in the agricultural sector aim to promote chemical pesticides and fertilizers on agricultural land,
productivity growth and lower the costs of agricultural as well as industrial wastes and raw sewage leaching
inputs, particularly amongst smallholders and into surface and ground water.
subsistence farmers, who account for an estimated
70 per cent of marketed agricultural production. The The government of Kenya created the Ministry of
reforms include: restructuring and rationalising the Water and Irrigation (MWI) in 2002 to consolidate the
network of agricultural-research institutes by responsibility for the management and development of
consolidating operations into the Kenya Agricultural water resources. Its mandate is to protect, harness and
Research Institute; strengthening the link between develop the country’s water resources to ensure the
farmers’ demands, extension provision and the direction availability of high-quality water to all.
of research, and increasing the productivity of public
investment; deepening agricultural financial services to The main institutions for the water and sanitation
ensure that poor farmers have access to credit and services (WSS) sectors are the MWI, the Water Services
insurance; putting in place reforms to improve and Regulation Board (WRSB), the Water Resources
competition in input distribution and marketing, and Management Authority (WRMA) and the Water
enforcing the law against fraudulent practices of input Services Trust Fund (WSTF). Other institutions include
supplies and marketing agents; reducing transport costs the water-services boards, water-services providers and
310 through improved rural roads and reduced fuel taxes the Water Appeals Board (WAB). These institutions are
and electricity costs; improving access to information co-ordinated by the MWI, which has the leadership role
through strengthened communications; giving support for the WSS sector. Water operators are
to co-operatives, private investors and other institutions private/commercial enterprises. The role of small and
to undertake necessary investments in marketing and medium-sized organisations for water services in small
value addition; formulating a national land policy to towns and peri-urban areas is to provide water and
address land use and administration, land tenure, and sewerage services to users. They connect water users to
land delivery systems; reviewing the law of succession the trunk lines of the main water system provided by
to address gender imbalances in land; reassessing food- the water-services provider and sell the water to
security policies and introducing pro-poor reforms; households and other users. The water and sewerage
amending the Coffee Act to allow growers to sell coffee departments within the municipality or local authority
outside the auction and establishing an agency to have been licensed to operate commercially as water-
operate processing, marketing and input distribution; services providers and as water and sanitation enterprises.
and supporting plans for the rehabilitation and The different institutions and operators are regulated
development of irrigation systems to support the under the Water Act of 2002.
revitalisation of the cotton and rice sectors.
In order to address the challenge of managing its
Access to Drinking Water and Sanitation water resources to satisfy sectoral demands, Kenya
adopted its first National Water Resources
Kenya is not well-endowed with water resources. Its Management Strategy (NWRMS) in 2003. The
annual surface-water and ground-water potential is NWRMS provides a clear, accountable and transparent
19.6 million m3 and 0.6 million m3 per year, respectively. roadmap for assessing, maintaining, enhancing,
This is less than 600 m3 per capita and well below the developing and managing fresh-water resources, using
norm of 1000 m3 per capita, which describes a situation an integrated approach and on a sustainable basis.
of water scarcity. Factors threatening these water sources Extensive investment is needed to remedy the low

Kenya
level of development of water resources. In addition, overhaul; need for more efficiency in the delivery of
it is necessary to reverse catchment degradation and water services and improvement of revenue collection;
control pollution. difficulties in mobilising resources for the WSTF to
implement community schemes; inadequate resources
There is no data on the average cost of access to water to rehabilitate and expand WSS infrastructure, leading
and sanitation services. However, this information is to poor maintenance of these systems; and the demand
expected to be provided by the Kenya Integrated for services exceeding their design capacity. Most of the
Household Budget Survey which was undertaken in water is not accounted for, due to the obsolete and
2005/6, the data of which is now being analysed. dilapidated state of water infrastructure and to the
increasing incidence of illegal abstractions. Resources
At present, the proportion of the population with for the rehabilitation and expansion of water and
access to improved drinking-water coverage in Kenya sewerage infrastructure have been inadequate, and
is about 50.9 per cent and the sanitation coverage is some water mains have been damaged by careless
81 per cent. The current water-supply coverage in construction practices. Customers have resisted paying
urban and rural areas is 75.5 per cent and 39.3 per cent, for water because of the general lack of accountability
respectively, while sanitation coverage is 94.8 per cent in the water sector. This is now beginning to change
and 76.6 per cent in urban and rural areas, respectively. as the water-services providers continue raising public
awareness of the importance of paying for water, and
The government’s targets to meet the Millennium revenue collected by the water-providing enterprises has
Development Goals (MDGs) by 2015 as indicated in been increasing.
the ERS are 80 per cent and 96 per cent for nationwide
coverage of safe water supply and improved sanitation, Reforms are driven by the National Policy on Water 311
respectively. For the urban and rural areas, the water- Resources Management and Development (1999), the
supply targets are 96 per cent and 66 per cent, NWRMS of 2003 and the National Water Services
respectively, while for sanitation they are 96 per cent Strategy and Investment Plan (2003). The Water Act
and 89 per cent, respectively. of 2002 created the legal framework for the
implementation of these policies. The key principles
The targets for WSS MDGs were planned and set of the reform are articulated around the separation of
for each sector by the Ministry of Planning and National regulatory functions from services delivery, separation
Development, which is co-ordinating the monitoring of ownership of assets from responsibility for operation
of the MDGs together with a roadmap for their and maintenance, the introduction of performance
achievement. Depending on the availability of funds targets and commercial principles, the ring fencing of
for investment in water projects, the planned targets water-services revenues to allow the collected revenue
are likely to be achieved. The progress rate in relation to be ploughed back and the redeployment of existing
to the goals for access to drinking water and sanitation staff to the new institutions.
(WSS) is higher compared to other MDGs thanks to
the early establishment of an integrated approach to Furthermore, it is government policy to devolve
water issues. Moreover, the ongoing rehabilitation of policy implementation to communities, the private
water systems throughout the country has improved sector and sector stakeholders. This approach is detailed
the access to water. in the Strategy for Performance Improvement in the
Public Service and in the policy on the reforms and
The main obstacles and challenges to WSS are privatisation of public enterprises. In this arrangement,
inadequate finance and lack of institutional capacity. the role of the ministry will be directed at policy
Problems include: inadequate plants and equipment for formulation, implementation, co-ordination, support
borehole drilling and dam construction; ageing WSS in resource mobilisation and regulation. This new
schemes of 20-40 years ago that need a complete thrust is reflected in the Water Sector Strategic Plan.

Kenya
Currently, MWI gives higher priority to water resources is wanting but currently being developed in
supply than to sanitation services. The MWI deals the context of new projects in the planning and of the
with sewerage, bearing in mind that other sanitation Nile Basin Initiative. A national WSS monitoring and
issues are being handled by the Ministry of Health. The evaluation mechanism is also lacking. WSS issues are
fear is that if most of the resources are directed towards monitored and evaluated by the implementing
the provision of water supply while neglecting sanitation institutions – the MWI or the Ministry of Health, for
services, the environmental-sustainability MDG might instance. Reports are provided regularly and published
not be achieved. Synergies do exist, however, as periodically. There is nonetheless transparency in the
sanitation services are also provided by other award of contracts, with no known political interference
stakeholders, such as the Ministry of Health. in water management.
A study is expected to be commenced soon to

determine the total amount of investment required for Political Context and Human
an efficient WSS infrastructure. The major actors in Resources Development
financing the water sector are the government and
donors/development partners, mainly through revenues One of the major indications of the determination
generated from water charges, government budgetary to pursue good governance has been Kenya’s
allocations, loans and grants. Multilateral financial commitment to the African Peer Review Mechanism.
institutions give loans and grants to water projects, while Kenya completed the peer review process at the 5th
the New Partnership for Africa’s Development (NEPAD) Summit of the APR Forum in Banjul, the Gambia in
water and sanitation programme provides technical June, 2006.
312 advice. Multi-stakeholder participation in the WSS
sectors is ensured through the Sector Wide Approach to The National Rainbow Coalition (NARC)
Planning (SWAP). Donor funds increased significantly government promised to deliver the new constitution
in 2006 to KES 16.5 billion. The main donors were the within 100 days of its taking office, but failed to do
Swedish International Development Agency, the Danish so. The draft supported by the government was defeated
International Development Agency, the African by the supporters of the opposition party in the
Development Bank, the World Bank, the French 21 November 2005 national referendum, and it appears
Development Agency, the Arab Bank for Development likely that constitutional reform will not materialise
in Africa, Japan International Cooperation Agency, and before the next general election.
the UN Human Settlement Programme UN-HABITAT.
There was some realignment amongst the political
A number of projects are currently planned, parties after the reconstitution of the cabinet soon after
including the Nile River Basin project for Efficient the government lost the constitutional-referendum
Water Use for Agricultural Production, the ongoing vote in November 2005. The formation of a
restructuring of the MWI headquarters, and the Government of National Unity involved part of the
rehabilitation of water and sewerage in Nairobi, original NARC, as well as some members of parliament
supported in large part by the Africa Water Facility. The (MPs) from the opposition parties. MPs from the
government budget for the MWI increased from NARC rebel wing of the Liberal Democratic Party
KES 3 billion in 2001/02 to KES 11 billion in 2006/07, (LDP) were left out of the new governing coalition.
with development expenditure for the water sector NARC-Kenya (NARC-K) was launched on 3 June
increasing from KES 3.2 billion in 2004/05 to 2006 with a huge show of power featuring the Vice
KES 6 billion in 2005/06. President and half of the cabinet in attendance. In July
2006, by-elections were occasioned by the death of
Further institutional changes are also needed. A five MPs in a plane crash. NARC-K won three of the
policy on the management of transboundary water five vacant seats, beating LDP and Kenya African

Kenya
National Union (KANU) rivals in an election that Efforts to improve the quality of free primary
some considered a sign of the direction the next general education are continuing. These include: financial
election will take. NARC-K is closely associated with management and accountability in schools; rationalising
the government, although the president has never the deployment of teachers; targeting tuition
declared direct support for the party. scholarships to poor and orphaned children; expanding
and improving educational facilities countrywide; and
KANU, together with the LDP, had campaigned providing adequate teaching and learning materials in
against the proposed constitution and both have now schools. These measures have resulted in a significant
formed a coalition party, the Orange Democratic improvement in a number of indicators.
Movement Kenya (ODMK), to challenge the current
government. Currently, the Political Parties Bill 2006 The percentage of primary-school graduates
is awaiting debate in parliament. The bill, if passed, will enrolling in secondary school increased from 47 per cent
pave way for political parties to receive funding from in 2002 to 57 per cent in 2006, and a target of 70 per
the treasury. cent has been set for 2007. The number of students
enrolled in universities increased from 71 349 in
In an effort to improve governance and reduce the 2001/02 to 89 979 in the 2005/06 academic year.
perception of being a corrupt regime, measures are being However, notable problems subside, including the
taken to strengthen key institutions – including the Office misappropriation of funds by headteachers, inadequate
of the Attorney General (AG), The Director of Public physical infrastructure, a low teacher-pupil ratio and
Prosecutions, the Judiciary and the Kenya Anti-Corruption the sustainability of the school feeding programme,
Commission (KACC) – that are on the front line of the especially in ASAL areas.
war on corruption.These measures include: hiring lawyers 313
and special prosecutors from the private sector; reviewing The authorities continued reorienting policy towards
terms and working conditions of the legal staff in the AG’s preventive healthcare provision, while ensuring efficiency
chamber; increasing the number of judges and anti- and effectiveness in healthcare service delivery
corruption courts; and implementing various governance countrywide. Reforms implemented in 2006/07
and anti-corruption strategies. include: improving healthcare procurement procedures
and accountability systems, as well as strengthening
In addition, the national security loan contracts supervision capacity of medical supplies in rural heath
awarded by the Department of Defence have been facilities in order to improve access to drugs and medical
audited and investigated and the reports tabled by the supplies. The allocation of resources to the health sector
Controller and Auditor General as well as the Public was increased from 8.6 per cent of total government
Accounts Committee. These contracts are also under expenditures in 2005/06 to 9.4 per cent in 2006/2007
investigation by the KACC. to promote the achievement of the MDGs.
The Government continued to improve the delivery These resources were used to fund, amongst others,
of services at the local level as a way of alleviating HIV/AIDS interventions, healthcare infrastructure
poverty mainly through the increase of devolved funds. and affordable drugs. The government, in collaboration
This included the Constituencies Development Fund with non-governmental organisations, set up mobile
(CDF), the Local Authorities Transfer Fund (LATF) medical programmes targeting vulnerable groups such
and the Road Maintenance Fund (RMF), amongst as those with disabilities and people living a nomadic
others. In 2006/07, the CDF was increased by almost life. The government supplements the health budget
40 per cent from the statutory requirement of 2.5 per for anti-retroviral drugs using money provided through
cent of ordinary revenues to about 3 per cent. Similarly, the treasury from the Global Fund while the Ministry
the LATF and RMF were increased by a comparable of Health is responsible for its distribution. The
34 per cent and more than 50 per cent, respectively. enactment of the Sexual Offences Bill in July 2006

Kenya
will also help to support the fight against the spread of country; inadequate access to sustainable clean-water
HIV/AIDS. The HIV and AIDS Protection and sources and sanitation facilities; lack of access to health
Control Act, 2006, was enacted in December 2006. services in many parts of the country; and insufficient
The Act provides for the protection and promotion of resources, including trained health workers, equipment,
public health and for the appropriate treatment, drugs, etc.
counselling, support and care for persons infected or
at risk of HIV and AIDS infection. There were a few incidents of polio outbreaks, a
disease that was last detected in Kenya more than
The infant-mortality and the under-five-mortality 22 years ago. This was suspected to be caused by the
rate are estimated at 77 and 115 per 1 000 live births, influx of refugees from the neighbouring countries.
respectively. The Kenya Demographic and Health
Survey 1998 indicates a wide disparity of under-five The target of creating at least 500 000 jobs annually
mortality across regions, with low mortality in the has continued to remain a challenge to the government.
central part of the country while the rest recorded high The economy has been generating an average of 471 000
mortality rates. Efforts to reduce child mortality have jobs annually, most of which were in the informal
been hampered by a number of factors, including: a sector. In 2004 and 2005, employment creation was
decline in levels of immunisation coverage against the short of targets by 16.6 and 41.1 thousand jobs,
six childhood diseases; recurring incidence of hunger respectively. This situation may improve somewhat,
and the resultant protein-energy malnutrition amongst following the establishment of a Youth Enterprise Fund
children; widespread incidences of malaria, diarrhoea established to provide young people with access to
and acute respiratory infections, which mainly have an credit for starting or up-scaling small or medium-sized
314 impact on children; the HIV/AIDS epidemic and enterprises, developing their entrepreneurial skills
related opportunistic infections; low literacy levels and and/or creating job opportunities.
low mothers’ education levels in many parts of the

Madagascar
Antananarivo
key figures
Madagascar
M ADAGASCAR’S ECONOMY FELL INTO A DEEP recession reduce poverty. The government has focused on reform
after the 2001 political crisis and shrank by 12.7 per of the budget and public procurement, more effective
cent in 2002. It soon bounced back, however, with monitoring of public finances and continued efforts to
growth of 9.8 per cent in 2003 and further expansion reduce the share of customs duties in budget revenue.
in 2004 (5.3 per cent), 2005 (4.6 per cent) and 2006 Elections for president in
Economic recovery is expected
(4.8 per cent). The recovery was fuelled by the strong December 2006 and for
to be sustained based on the
performance of the primary and secondary sectors and parliament in 2007 should
performance of the secondary
further reforms to bolster the opening up of the encourage the government
and tertiary sectors which
economy, improve macroeconomic stability and to stick to this course.
benefited from fiscal and
governance, and combat poverty more effectively. Adoption of programme
macroeconomic reforms.
budgets and a serious war
Macroeconomic policy since 2002 has been based on corruption should greatly improve management of
on maintaining stability to encourage growth and public finances.
317
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Madagascar
Recent Economic Developments energetic promotion of Madagascar as a tourist

destination led to the opening of eight new hotels in
Despite good performances in 2005 by agriculture, the first quarter of 2006. The government is encouraging
tourism, construction and, to a lesser extent, exports, the sector with a tourism master plan (TMP) and
real GDP grew only 4.6 per cent, down from 5.3 per giving higher status to the national tourism office.
cent in 2004 and well below the 2005 budget’s forecast
of about 7 per cent. This outcome was mainly due to The primary sector, which accounts for about a
higher world oil prices, expensive electricity and frequent third of GDP, grew a modest 3.3 per cent in 2005 (up
blackouts caused by the financial crisis at the national from 3.1 per cent in 2004). Its best performer was
power and water company Jirama, which hurt the agriculture, where rice production increased thanks to
productive sectors, especially industry. Although growth good weather and the improvement in growers’ access
was up slightly in 2006, it is further threatened by to microfinance and inputs, especially fertiliser. Great
persistent structural problems linked to public finance efforts were also made to upgrade agricultural
management, slow reform of the public sector, infrastructure such as dams and irrigation channels,
governance issues and a poor business climate that expand crop areas and teach growers about new
discourages private investment. The expiry of the production methods. Sector growth is expected to slow
African Growth and Opportunity Act (AGOA) to 2.1 per cent in 2006 because of poor rainfall and
preferences for Madagascan exports to the United States costlier energy.
will not help matters. The government wants to use all
the opportunities provided by its membership of the The secondary sector (a bare 16 per cent of GDP)
Common Market for Eastern and Southern Africa performed least well in 2005, growing only 3 per cent
318 (Comesa) and the Southern African Development (less than half the 6.6 per cent recorded in 2004). It
Community (SADC). grew 4.7 per cent in 2006 but was hit by the end of
the Multifibre Arrangement (MFA) at the beginning
The tertiary sector, which accounts for more than of the year, higher oil prices, frequent power cuts and
half of GDP, was the star performer in 2005 with sluggish industrial output, especially in the free zones.
6.2 per cent growth, mostly due to booming transport, Industrial activity outside the free zones grew nearly
telecommunications, banks, insurance and services. 12 per cent in 2005 due to good results in construction
Extension and modernisation of the country’s roads materials (up 13.5 per cent), construction (+18.8 per
opened up isolated productive regions and linked them cent) and electrical appliances (+25 per cent). The
to markets for agricultural and industrial items. Despite government wants to revive and diversify the sector by
the threat posed by chikungunya fever, the tourism quickening the pace of Madagascar’s integration in the
sector still managed to contribute to growth, and SADC and encouraging the sugar industry.

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Madagascar
Pending the development of a mining sector, which were up more than 21 per cent on 2004, generating
could be based on oil and diamonds, the economy 19 per cent more revenue (367.7 billion ariary, compared
continues to rely heavily on traditional products. with 308.3 billion in 2004). Major investments are
World prices for coffee soared in 2005 to $0.56 a bag planned to convert sites in the south to up-market
(up from $0.37 in 2004), boosting the value of the tourist destinations. Rail transport of goods grew
country’s coffee exports by 62.5 per cent. In contrast, strongly (about 30 per cent), contrasting with the poor
vanilla prices slumped 84 per cent in 2005, cutting performance of road transport, held back by higher oil
export earnings by three-quarters, despite a 50 per prices and a sluggish industrial sector, and the even
cent rise in the volume exported. The export price of weaker performance of sea transport, which declined
cloves improved by 20 per cent, but earnings fell more than 11 per cent year-on-year, mainly due to
sharply as volume exports were more than 45 per cent lower imports of capital goods. Banking and insurance
lower. Madagascans still depend on rice, and efforts continued to grow, thanks largely to greater public
to increase food security were expected to boost output access to microfinance, whose use increased from 4 per
of paddy rice by 15 per cent in 2006 (to 3.93 million cent of households in 2000 to 7.6 per cent in 2005.
tonnes). The 3.42 million tonnes produced in 2005 New technology also prospered, especially in fixed and
were not enough to meet local demand, and the mobile telephony, which gained 50 per cent more
government had to import rice during the dry season subscribers in 2005 year-on-year. Banking should grow
at a subsidised price. Consumer prices for rice in rural by 6.9 per cent in 2006 (+6.6 per cent in 2005), and
markets fell in early 2005 despite more expensive microfinance providers are expected to serve an
energy and averaged about 900 ariary per kilogram at increasing percentage of potential customers (15 per
the end of the year. The food security policy is also cent in 2005) and also improve the loan satisfaction
reflected in fish-farming, which grew 2.8 per cent in rate (50 per cent in 2005). The goal in 319
2005 due to restocking, production of alevin and the telecommunications is to expand national phone
introduction of forgery-proof fishing permits to protect coverage, which was still only 3.2 per cent in 2005.
fish stocks and regulate the industry better. Efforts to
improve livestock quality included importing Overall economic activity in 2006 was helped by
9 000 doses of selected animal semen, local production a 14.8 per cent rise in gross investment. Public
of 7 055 doses and vaccinating 77 per cent of cattle. investment was fairly in tune with the priorities of the
poverty reduction strategy paper (PRSP), despite the
Consumption of oil products fell slightly (0.6 per fall in its GDP share to 9.3 per cent in 2005 (10 per
cent) in 2005, but that of electricity grew 3 per cent. cent in 2004) and changes in execution procedure for
Mining advanced in 2006 with a 9 per cent increase government spending. Public investment should rise
in chromite production and planned investment by (to 10.8 per cent of GDP) in 2006 to support
Qit Madagascar Minerals to extract ilmenite (titanium infrastructure and the social sector, followed by a
ore) in the Tolagnara (formerly Fort Dauphin) region. renewed fall in the medium term. Private investment
Other investment is being negotiated with the has steadily risen, to 16.7 per cent of GDP in 2005
Dynatec/Sumitomo consortium to mine nickel and (14 per cent in 2004), and should reach 18.2 per cent
cobalt at Ambatovy. Madagascar also earned about in 2006. It is expected to increase further in the medium
6 billion ariary in 2005 from exports of precious stones. term if the business climate improves and
In all, mining yielded 339 million ariary in royalties macroeconomic policy is stabilised. Public consumption,
for the government, as against 212 million in 2004. despite a smaller share of GDP in 2006 (8.6 per cent,
Oil exploration in the Mozambique Channel by down from 9 per cent in 2005), should increase in
Madagascar Oil may boost revenue from 2009. 2006 due to the rise in capital expenditure. Private
consumption has also risen, and the gradual fall in
Tourism continued to expand in 2005, and eight inflation (to an expected 5 per cent in 2009) should
new hotels opened in the first quarter of 2006. Visitors boost household purchasing power.

Madagascar
After the expiry of the MFA and the drop in raw 2005 and of the third-party provision of AGOA (the
material prices, goods exports fell 11.2 per cent in last stage of the preferences process for Madagascan
2005, to 1 675.7 billion ariary (from 1 864.5 billion exports to the United States) in 2007 will hurt the
in 2004). Imports rose about 5 per cent, to Madagascan economy. To soften the blow, the
2 817.6 billion ariary (2 684.3 billion in 2004), government is finalising the 2007-11 Madagascar
mainly because of greater imports of subsidised rice. Action Plan (MAP) to replace the PRSP and setting
Abolition of customs duty exemption for imported clear quantitative targets based on the national
capital goods in the last quarter of 2005 cut the development vision “Madagascar, Naturally” and the
inflow of such goods in 2006 to 464 billion ariary Millennium Development Goals (MDGs). The MAP
(from 736 billion in 2005) and caused a drop in will spell out the government’s development aims,
public and private investment in productive activity. enable it to respond to opportunities arising from
Customs duties and import taxes are to be combined globalisation and make the country’s forecasting and
in a single tax category. The expiry of the MFA in planning more effective.

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 7.5 9.3 20.0 6.0 3.0
Private 6.9 16.7 12.0 10.0 10.0
320
Consumption 93.8 91.4 3.3 4.3 5.0
Public 8.0 9.0 1.4 8.8 5.0
Private 85.9 82.4 3.5 3.9 4.9

Exports 21.4 28.2 5.6 3.7 4.1
Imports -29.7 -45.5 8.1 4.4 4.8
Source: National Statistics Institute data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/610120035362
Macroeconomic Policies Public spending was held to 21.3 per cent of GDP
in 2005 and was geared mostly towards investment in
Fiscal Policy infrastructure, health and education. It rose to an
estimated 21.7 per cent of GDP in 2006. Capital
Government revenue increased due to streamlining expenditure also rose, by about a quarter over 2005,
of the tax system, better tax and customs collection, to more than 1 290.4 billion ariary (11 per cent of
and, in part, the abolition in September 2005 of customs GDP), 1 004 billion of it funded by debt relief under
exemptions for imported capital goods. This income the Heavily Indebted Poor Countries (HIPC) Initiative.
was not enough to cover expenditure, however, owing To avoid the spending overruns, particularly in
to the reductions in duty on emergency rice imports. budgetary spending, that occurred in 2005 after pay
Total revenue (excluding grants) in 2005 was rises for civil servants, the government has adopted
1 102.8 billion ariary (10.9 per cent of GDP), up from programme budgets and set up budgetary and financial
982.4 billion in 2004 (12 per cent of GDP), with an discipline councils. Systematic analytical audits of
expected further increase to 1 340 billion ariary (11.3 per spending will be conducted, and ministries will have
cent of GDP) in 2006. to submit monthly spending plans so that the treasury

Madagascar

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 9.8 10.0 10.9 10.4 10.6 10.4 10.4
Grants 3.5 5.1 8.2 5.7 5.8 5.1 4.1
Interest 2.7 2.2 2.9 2.6 2.2 1.6 1.4
Primary balance -3.1 -2.0 -2.0 -2.0 -2.6 -3.2 -3.6

Overall balance -5.8 -4.2 -4.9 -4.7 -4.7 -4.8 -5.1
Source: Ministry of Finance and Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/800857142766
can match them to expected revenue and financial declined to 11.4 per cent in 2006 (from 18.4 per cent
flows. A new information system for monitoring in 2005) due to a sizeable fall in the price of consumer
expenditure will be introduced in 2007 along with staples, while the prices of other goods remained tied
new public procurement rules. Money freed up under to higher world oil prices and electricity rates and to
the Multilateral Debt Relief Initiative (MDRI) will go depreciation of the ariary.
exclusively to poverty reduction and will be monitored
accordingly. To limit the excesses caused by the supply-side 321
shocks, the BCM kept in place in 2005 the restrictions
Despite problems in cutting expenditure, the it introduced in 2004 to curb growth of the money
government hopes to end the 2006 budget period with supply. This more cautious monetary policy, controlling
a deficit (including grants) equal to 4.7 per cent of the sources of money creation, involved keeping the
GDP. To reduce it further, administrative and tax BCM’s intervention rate at 16 per cent and the reserve
measures are planned to increase the tax burden to requirement at 15 per cent. Since banks found
10.7 per cent in 2006 (10.1 per cent in 2005). This themselves in a situation of excess liquidity early in
rate is far too low, and the country will have to increase the year, these measures were reinforced in April by
it gradually in order to offset (with more stable budget exclusion of banks’ cash in hand from the calculation
revenue) the abolition of customs duties scheduled as of the reserve requirement.
part of Madagascar’s membership of SADC and
Comesa. The tax on oil products was raised in January Loan policy in 2005 was to encourage primary
2006, by 66 per cent on petrol and 178 per cent on banks to finance the private sector, and loans to business,
diesel. Steps are also planned to improve management especially to importers of oil products, rose 22 per cent
and collection of VAT, after cutting the average rate from during the year. Financial markets did well in the first
20 to 18 per cent and unifying it into a single rate. The half of 2006 with renewed auctioning of treasury bonds,
tax administration and its data and assessment system which allowed non-bank financial institutions to buy
will be made more efficient. them as well and enabled the government to finance
the deficit in a more sound manner while tapping at
Monetary Policy source into some of the excess bank liquidity.
Like other central banks, Banque centrale de The government hopes to bring inflation down to
Madagascar (BCM) has the job of ensuring stability of 5 per cent in the medium term, but the double-digit
prices, the currency and the exchange rate. Inflation rates of the past five years (except in 2003) could

Madagascar
persist for the next few years, especially if drought goods imports fell somewhat from the 2004 figure
exerts inflationary pressure by reducing hydroelectric because of the abolition of customs exemptions, while
energy output and future harvests. The inflationary the terms of trade deteriorated as world oil prices rose.
trend may also last because of rising water and electricity Reduced foreign grants and loans in 2005 helped keep
prices. To curb money creation, the government also the balance-of-payments deficit at about the same level.
hopes to use liquidity controls such as tenders and
repurchasing. Treasury repayments will also reduce The government streamlined customs duties by
the government’s debt. The nominal effective exchange combining them in three tariff bands (of 5, 10 and
rate fell by 9 per cent between April 2005 and April 20 per cent). In addition, Madagascar recently joined
2006, which allowed the real rate to sink below the the SADC and wants to use all the opportunities it
level it reached before the 2004 devaluation. The provides for agriculture and tourism. The country also
government wants to keep the floating rate, limiting belongs to Comesa, whose members are considering a
BCM intervention to smoothing out large rate common external tariff. Madagascar will have to phase
fluctuations and meeting targets for foreign exchange out its customs duties, which will be abolished under
reserves (the target for 2006 was the equivalent of these regional agreements, and find more reliable sources
2.9 months of imports). of revenue. As well as using current foreign aid, the
government plans to call on the European Union for
External Position substantial help in funding the MAP.
The current account deficit was 10.1 per cent of The total external debt was 69.7 per cent of GDP
GDP in 2005, with the sharp drop in vanilla prices, a ($3.5 billion) in 2005, 80 per cent of it bilateral and
322 fall in shrimp exports because of overfishing and the multilateral. The debt situation in 2006 seems
end of the MFA all substantially reducing export sustainable due to cancellation of nearly $2.4 billion
earnings. The deficit is expected to reach 16.8 per cent in debt under the HIPC Initiative and the MDRI.
in 2006 because of a big rise in total imports (to Analysis of its viability shows that the main debt
5 167 billion ariary, from 4 598 billion in 2005). Goods indicators, which were already satisfactory in 2005,
exports fell in 2005 (to 1 798 billion ariary from would fall substantially in 2006, and that the country’s
1 853 billion in 2004) but are expected to rise to stock of debt would be cut by some 70 per cent by the
1 986.4 billion in 2006, while goods imports, which end of the year. The government’s strategy for controlling
rose slightly in 2005, should reach 3 159.6 billion. future debt involves the use of soft loans and curbing
The trade deficit is thus set to increase to 13.3 per cent domestic debt by gradual withdrawal from the banking
of GDP in 2006 (from 9.5 per cent in 2005). Capital sector and repayment of its commercial debt.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -4.0 -4.0 -10.0 -9.5 -13.3 -12.8 -12.9

Services -3.8 -5.4 -6.3 -3.5 -6.0 -5.9 -5.8
Factor income -2.0 -1.5 -1.5 -1.6 -1.3 -1.2 -0.9
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Madagascar

Source: IMF. 323

http://dx.doi.org/10.1787/322880454002
Structural Issues and vulnerability to external shocks. The authorities

have also asked the IMF to apply its Trade Integration
Recent Developments Mechanism (TIM) to help them cope with the expiry
of the MFA and AGOA. Madagascar has received IMF
Madagascar is one of the world’s poorest countries technical assistance since 2005 to help with
(ranked 146th out of 177 in the UN Development management of tax revenue and public finances and
Programme’s 2006 Human Development Report), with a financial sector assessment programme (FSAP).
and its economic development is held back by lack of It has also had help in recent years with tax and customs
local savings, outdated economic and social policy and administration. Other major steps to clean
infrastructure, very unequal and arbitrary application up public finances have included computerising
of rules nationwide and, in recent years, frequent and procedures under an integrated system of managing
extensive power cuts by the state water and electricity public finances and combating corruption through a
monopoly Jirama, which is in acute financial and national anti-corruption council and an independent
structural crisis. The country’s weak structures are ill- anti-corruption office. Reform of procurement
equipped to manage public finances and withstand procedures resulted in new regulations in 2006. Most
external shocks, including wildly fluctuating prices prices have been liberalised, and the bold introduction
for products such as oil and vanilla. of 99-year leases aims to reassure foreign investors
about access to industrial and agricultural land.
The government has asked the International
Monetary Fund (IMF) to help, through a new poverty Thirty-five of the 47 state firms due to be privatised
reduction and growth facility (PRGF) agreed on in July were turned over the private sector in 2005 and 2006,
2006 to support its 2006-08 programme for economic including the phone company Telma and the northern
growth, budget consolidation, and reduction of poverty railway company RNCFM. Divestment of Air

Madagascar
Madagascar was suspended, however, and that of of unsurfaced roads, expansion of meteorological
Aéroports de Madagascar (Adema) is not complete. infrastructure and assistance, and upgrading sections
Others due to be privatised are either being reorganised of railway (70 kilometres in the north and 40 in the
(such as the sugar company Sirama) or being turned south). Two agencies, one for roads and the other for
into shareholding firms so some of their assets can be road transport, have been set up to regulate transport
sold off. In 2007, the government plans to prepare for and encourage competition between hauliers.
privatising the southern railway and the port of Mana
Kara by getting the World Bank to pay for upgrading Opening up the economy, political stability and
infrastructure to ensure the line is financially viable, and streamlining visa and work-permit formalities have
to franchise out the 12 airports run by Adema. improved the business climate. A commercial
arbitration law was passed in 2005, along with a code
The government is paying special attention to of conduct for judges encouraging them to open
Jirama because of its huge effect on the entire economy. private practices. These reforms, as well as better
A variety of measures have been taken to deal with its performance by the banking sector and privatisation
structural and financial problems, including franchising of two banks, have helped boost private investment.
it and revising its rates. A private management contract The government and the World Bank have nearly
to have the firm operated under a lease arrangement completed an investment climate assessment (ICA)
has been drafted with World Bank help. Electricity and are hoping for good results from current
prices rose 93 per cent in 2006 and a thorough decentralisation and devolution of procedures and
restructuring plan has been submitted to the funding practices in the country’s 22 regions. However, the
agencies. The government is also pulling out of water- private sector is still hampered by poor basic
324 supply operations. The government wants to complete infrastructure, overly expensive factors of production,
the entire privatisation programme in 2007 and 2008 lack of long-term financing and structural flaws in the
but is meeting strong resistance from trade unions and banking system. Arbitration procedures are still drawn-
from squatters blocking settlement of land issues and out and inadequate, and the poor qualifications, pay
delaying the divestment process. and working conditions of judges are still causing
problems. Madagascar dropped one place (from 148th
Good transport infrastructure encourages to 149th) between 2005 and 2006 in the World Bank’s
agriculture and fisheries by linking these sectors to 2006 Doing Business Index, which measures the
markets and helping to reduce poverty, especially in business climate. It jumped an impressive 28 places
the rural south, where 39.7 per cent of the country’s in the ranking for business creation, but dropped 36
poor live. One of the pillars of the infrastructure places in the labour law facilities category. The
development strategy is thus to improve transport in government’s opening of a one-stop shop has reduced
the countryside, where it is very important. The bottlenecks and costs due to bureaucratic delays. The
government is speeding up a road project in Toliara authorities also intend to continue modernising
province (upgrading highway RN 1 bis), repairing business laws (already well under way through a
infrastructure damaged by cyclones and, with the business law commission) and build a suitable legal
help of the African Development Bank (AfDB), and institutional framework to promote public-private
completing the surveying of RN 9, which will allow partnerships. The government will have to sort out
the country to present its development partners in the land issue (a major obstacle in the key agriculture
2008 with an integrated road project. RN9 will be and tourism sectors) if more foreign direct investment
crucial to success of the PRSP, since it will be a major (FDI) is to be attracted. About 90 per cent of farmers
link between the fisheries project area and the outskirts own their land, but only 8 per cent have proper deeds
of Bas-Mangoky and Manombo with the port of to it. This hampers partnership with foreigners and
Tuléar. Achievements in 2006 included a maintenance reduces the property market, along with access to
plan for 4 500 kilometres of metalled roads and 3 700 loans, for which land is often used as security.

Madagascar
The financial system comprises the BCM, seven the fight against poverty, so the government, as part of
commercial banks, various microfinance institutions, its “Madagascar, Naturally” development vision, wants
insurance companies, and pension and retirement to double agricultural output between 2004 and 2009.
funds. Reforms have begun in this sector as well, to Urgent measures were taken in 2005 to combat forest
liberalise it and make it more efficient. Special attention fires, reduce by a quarter the area burned and replant
has been given to making the BCM more independent 50 000 hectares a year with mostly high-quality species
from the government. The banking system remained which could earn foreign exchange.
profitable and well-funded in 2005 and should grow
6.9 per cent in 2006 (+ 6.6 per cent in 2005). Prevention of forest fires, reforestation and
Government debt to the banks fell by 27.5 per cent in improved weather forecasting are crucial aspects of
2005 (to 294.1 billion ariary from 405.8 billion in the management and preservation of the country’s
2004) and should drop by another 73 billion ariary in natural resources. The same is true of improving
2006. Solvency and liquidity indicators improved, and rural living conditions, which can be done by
banks had far fewer non-performing loans. Two laws supplying primary healthcare, education and better
were passed to monitor and regulate credit institutions access to drinking water and sanitation. A policy of
and mutual finance bodies. A banking and financial sustainable management and use of fish stocks has
supervision commission was set up and prudential been started, with the introduction of forgery-proof
management standards introduced. Steps were also inland and marine fishing permits and the restocking
taken towards privatising state banks and boosting the of water courses. Sustainable management of forests
interbank exchange market. Despite these reforms, and protection of wetlands and marine and coastal
much remains to be done in financial intermediation, eco-systems is being pushed thanks to Madagascar’s
diversifying financial products and broadening access signing of the Ramsar Convention on Wetlands and 325
to financial services. With World Bank and IMF help, the Nairobi regional convention. A network of
the government completed a review of the financial protected areas (Système d’aires protégées de
sector in 2005 that identified its weaknesses and Madagascar – SAPM) was set up in 2005 to protect
provided the basis for a programme to build capacity plant and animal life and develop eco-tourism. Better
and boost technical assistance. regulation of the gem and gem-cutting sub-sectors
has been introduced. These measures have been
To encourage savings, which are expected to increase completed by a new mining code and a law governing
15 per cent in 2006, the government, with support from major mining investments as part of a project on
the Millennium Challenge Corporation, is encouraging governance of mineral resources (Projet de
savings banks and facilities to expand in rural areas gouvernance des ressources minérales – PGRM) and
and wants to strengthen the payment system to cut Madagascan membership of the Extractive Industries
delays, set up a nationwide clearing-house for credit Transparency Initiative (EITI).
institutions and draw more of them into the formal
banking system. Steps have also been taken to expand Access to Drinking Water and Sanitation
and decentralise the financial market so that large towns
and cities can issue bonds, especially for small investors. The country’s water resources are shrinking due to
climate change, uncontrolled use and alarming damage
Despite its huge potential, agriculture is struggling to the environment through organic pollution and
to expand in the face of obstacles such as bad agricultural forest fires. The sector also suffers from non-integrated
infrastructure and transport, which prevents the water management, lack of well-structured coordination,
emergence of serious commercial farming. The low a large number of operators and institutions whose
technical capacity of farmers, lack of access to credit, activities overlap and cause wastage, government
poor training and the poor organisation of the sector domination and a low rate of satisfaction of water and
also hold it back. Agriculture has a key part to play in sanitation needs.

Madagascar
The PAEPAR drinking water and rural sanitation period, development partners will also be working on
project (Projet d’alimentation en eau potable et capacity building and the development of rural water
assainissement rural) aimed to build the capacity of the supply and sanitation infrastructure.
government, private sector and local communities to
supply water and sanitation sustainably and effectively. In 2005, 29.88 per cent of Madagascans had access
The $17.3 million project, funded by development to drinking water (66.53 per cent in urban areas and
partners and the World Bank, covered the 1998-2005 15.63 per cent in the countryside). Sanitation access
period. The government has switched from a pilot was 52 per cent (73.3 per cent urban and 44.2 per
approach for the sector to a programme budget cent rural). The south of the country was worst off. In
approach. PAEPAR also facilitated $100 million of 2006, these figures are expected to be 36 per cent for
new rural projects funded by the AfDB. They included drinking water at national level (67.16 per cent urban
installing 627 wells with hand pumps and 320 gravity and 19.13 per cent rural) and 58.10 per cent for
systems, with local communities helping to pay for sanitation (76.36 per cent urban and 58.10 per cent
them in cash and in kind. About 300 gravity systems rural). About 400 delivery systems were planned, but
and 350 equipped wells can be installed in the country only 106 were built in the first half of the year (an
each year. Average distances from water sources have execution rate of 27 per cent). Some 4 000 new latrines
been reduced from three kilometres to 500 metres and were to be installed, and 3 000 are already in place.
water-drawing time by 40 minutes per journey, which
has increased consumption and noticeably reduced With the lessons it learned from PAEPAR, the
water-borne diseases in the project areas. The project government adopted a national water and sanitation
also encouraged use of family latrines and introduction access programme (Programme national d’accès à l’eau
326 of the Diorano-WASH public-private partnership potable et à l’assainissement – PNAEPA) in 2005 to
programme to get people to wash their hands with move towards achieving the MDGs. The government
soap. These results have been welcomed by the partners, has promised access to improved water for 72 per cent
as diarrhoeal illnesses are the second biggest cause of of the population by 2015 and better sanitation for more
morbidity in Madagascar, affecting 51 per cent of all than 50 per cent.
children under five. About 2.5 million Madagascans
are infected with bilharzia, and 60 per cent of children’s PNAEPA funding rose from $10.6 million in 2004
deaths are due to polluted water and bad sanitation. to $14.6 million in 2005, 40 per cent of it from local
sources. Clean water was supplied to about
Under the integrated water resource management 148 000 people in 2004 and 222 000 in 2005,
strategy (Gestion intégrée des ressources en eau – compared with only 50 000 in 2001. A national
GIRE), a national water and sanitation authority was sanitation policy and strategy (Politique nationale et
established (Autorité nationale de l’eau et de stratégie pour l’assainissement – PNSA) was drawn up
l’assainissement – ANDEA), which since 2003 has in 2006 and will be presented to the government for
monitored drinking water quality. Since there are no approval. An action plan for the entire water and
facilities yet to treat sewage and industrial effluent, sanitation sector has also been drafted and put in place.
ANDEA monitors the environment and compliance
with environmental standards. The institutional reforms The overall programme for 2005-15 will be
in the sector also include, for reasons of efficiency and implemented through sub-programmes. The energy
recovering costs, the establishment of regional and and mines ministry has drafted a nationwide medium-
local water and sanitation departments to ensure good term expenditure framework (MTEF) for 2006-08. A
management of existing infrastructure and reduce first sub-programme, presented to aid donors in
unaccounted-for water to a minimum. Customers will February 2005, covers seven of the country’s 22 regions
have to pay part of the cost – an annual per capita $70 and will be jointly funded by the government, local
for water and $10 for sanitation. Over the 2005-09 people and the African Development Fund.

Madagascar
Political Context and Human cent. These are some of the lowest rates in the world,
Resources Development beneath the sub-Saharan average of 30 per cent for the
11-14 age group and 13 per cent for those aged 15-
Madagascar has emerged from a long period of 18. The pupil/teacher ratio in primary schools improved
state control of economic and political affairs that led from 59 per teacher in 2005 to 52 in 2006. Only 309
in 1996 to the introduction of reforms to open up the of every 100 000 inhabitants were in higher education
economy and reverse rapidly declining per capita in 2006, compared with an average of 300 in low-
income. A transition crisis delayed them, but after the income countries and 1 400 in neighbouring Mauritius.
election of President Marc Ravalomanana in 2002, The number is expected to rise to 358 in 2007 and 407
stabilisation efforts resumed with support of in 2008. The share of the education budget in the
development partners. The country reached the decision national budget has been falling since 2004 (when it
point under the Enhanced HIPC Initiative and then was 20.2 per cent), to 19 per cent in 2005 and 16.5 per
completion point in 2004. cent in 2006. Universities have suffered most from
these budget cuts because their investment spending
Ravalomanana was re-elected in December 2006, has dropped sharply, from 12.4 per cent of education’s
and parliamentary elections are due in 2007. Fourteen total investment spending in 2005 to 5.6 per cent in
opposition parties fielded presidential candidates and 2006. Basic education’s share of the sector budget fell
called on the international community to ensure the from 82.8 per cent in 2005 to 78.9 per cent in 2006.
honesty of the poll and the vote-counting. The media,
which is genuinely free, provided full coverage of the The predominant diseases in Madagascar are still
elections, including clashes during the campaign. malaria, diarrhoeal illness, acute respiratory infections,
bilharzia and sexually-transmitted diseases (STD). 327
The government intends to step up the fight against Government health priorities for 2006 focused on
corruption, reform the civil service, promote the use improving access to neighbourhood healthcare,
of democracy and the rule of law, and start promoting mother/child health and stepping up the
administrative reforms to increase access to public fight against infectious diseases and HIV/AIDS.
services through greater decentralisation and devolution. Maternal mortality is still high, at 469 for every
The Millennium Challenge Account ranks the country 100 000 live births, but child mortality below the age
as its main beneficiary because of its good performance of five fell from 94 per thousand in 2004 to 88 in
in governance. 2006. A total of 63 basic healthcare centres were built
and equipped in 2005, adding to 197 existing ones,
Madagascar scores high among African countries and 511 doctors, 43 dentists and 669 paramedics were
in respect for women’s rights. The population is hired. The battle against infectious diseases targeted
practically at gender parity in terms of completion of leprosy and malaria. HIV/AIDS incidence is only 1 per
primary education (42.4 per cent for men and 41.5 for cent among the general population but still more than
women), but more women are unemployed than men, 5 per cent among those engaged in high-risk behaviour.
and women earn lower wages when they have equal The government and its partners have drafted a national
qualifications. HIV/AIDS action plan because of this danger of greater
infection. An epidemic of chikungunya fever in 2006
The main goals of education policy are ensuring affected tourism as well as the general population.
basic education for all and good quality teaching at all
levels, but results are far short of this. Net enrolment Based on growth projections of 4.8 per cent in
of children aged 6 rose from 67 per cent in 2000 to GDP and 2.8 per cent in population in 2006, poverty
96.5 per cent in 2006, but the dropout rate is still very was estimated at 67.5 per cent (72.3 per cent in the
high. Gross enrolment of children aged 11-14 was only countryside and 50.3 in urban areas). These are poor
27 per cent in 2005 and of those aged 15-18 only 7 per figures compared with other African countries, but

Madagascar
showed improvement over the 2005 poverty rate of The PRSP’s priorities have not changed. After it was
68.7 per cent (73.5 per cent rural and 52 per cent updated in June 2005, the goals of “Madagascar,
urban). This improvement is probably due to better Naturally” were incorporated in it so as to highlight
public access to basic social services and to infrastructure. efforts to achieve the MDGs.The PRSP will be completed
The June 2006 PRSP implementation report noted a in 2007 and succeeded by the MAP until 2011.
major impact of economic growth on poverty reduction.
The strong 5 per cent average annual growth between Labour policy priorities focused in 2006 on
1997 and 2001 brought poverty down to below 70 per implementing the national employment policy and
cent, though the gap between rich and poor continued the labour law. Creation of a national jobs and training
to widen. Poverty is still mainly rural. The “Madagascar, monitoring centre (Observatoire malgache de l’emploi
Naturally,” target for 2020 puts the rural economy at et de la formation – Omef) was an important milestone
the centre of poverty reduction efforts and aims to in analysing and planning the labour market. Five
double agricultural production and exports over five regional Omef branches were opened in 2006, as well
years, boost textile exports by half in five years and as two tripartite regional labour councils and three
200 per cent over 10 years, raise agro-food production regional committees to combat child labour.
by half in five years and 150 in 10 years, and increase Unemployment was 2.7 per cent in the formal sector,
tourist arrivals from 160 000 in 2003 to 400 000 in according to Omef, with 75 per cent of the labour
2008 and 800 000 in 2013. These efforts will succeed force working in the informal sector. Only 3 802 jobs
only if agricultural and fishing production and were created in 2006 (15 000 were planned), and
productivity increase significantly, especially in the 15 807 people received vocational training.
south, to improve food security and income, which are
328 the only ways to reduce poverty sustainably in the
countryside.

Malawi
Lilongwe
key figures
Malawi
M ALAWI IS AMONG THE POOREST countries in the partners. The attainment of the completion point of
world without a violent internal conflict. While 2005 the Highly Indebted Poor Countries (HIPC) Initiative
presented a number of severe challenges, including a in September 2006 was a
Maize production remains
major food-security crisis where close to half the landmark event. The proceeds
the key to food security
population required emergency food support, Gross from the debt relief will facilitate
and good harvests are
Domestic Product (GDP) growth rebounded strongly implementation of the country’s
reassuring but the economy
in 2006. A well-managed response to the food crisis pro-poor development strategy.
needs to diversify and
by the government and donors ensured timely and Much is now being made of so-
poverty remains persistent.
large-scale imports of maize in the large quantities called “second generation”
required. Good rains in the 2005/06 growing season, reforms, and the challenge for Malawi is to capitalise
coupled with an improved distribution of subsidised on progress made in 2006 to ensure that solid
fertilizer resulted in a bumper maize crop and improved foundations are laid for growth and development in the
yields in almost all major agricultural commodities. years ahead. In this regard, addressing the longer-term
Continuing budget discipline and macroeconomic infrastructural constraints that hamper trade, tackling
stabilisation has won Malawi plaudits from the the inhospitable legal operating environment for the
International Monetary Fund (IMF) and development private sector and re-invigorating the privatisation
331

■ Malawi - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Malawi - Real GDP Growth (%)
10 8000
8 7000
6 6000
4 5000
2 4000
0 3000
-2 2000
-4 1000
-6 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and National Statistics Office data; estimated (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/773174774225

Malawi
process are matters of some urgency. Malawi has made fertilizer-subsidy programme led to an impressive 87 per
reasonable progress in providing access to safe drinking cent increase in maize production compared with the
water and improving sanitation. However, the high previous year. The total estimated production of
cost of capital and poor management continues to 2.35 million metric tonnes was in excess of Malawi’s
hamper adequate investment in maintaining and requirements of 2.18 million metric tonnes for
rehabilitating water and sanitation infrastructure. consumption, seed requirements and replenishment
of the Strategic Grain Reserve, leaving a net surplus of
250 000 tonnes for export. The immediate impact of
Recent Economic Developments the bumper harvest was that fewer than 900 000
Malawians required food aid in 2006 ahead of the
Real GDP growth rebounded to 8.4 per cent in 2007 harvest – the lowest figure in four years.
2006 as the Malawian economy recovered from a
drought-induced crisis that had slowed growth to The government intends to distribute 150 000
2.2 per cent in 2005. Growth is expected to continue tonnes of subsidised fertilizer during 2006/07 at a total
at the more moderate pace of 4.8 and 5.1 per cent in cost of MWK (Malawian kwachas) 5.5 million (about
2007 and 2008, respectively. one-third of the total agriculture budget). Smallholder
maize and tobacco farmers (in rural areas only) are
A large component of growth in 2006 represented entitled to one 50-kilogramme bag of fertilizer at a
recovery of agricultural production from the dismal price of MWK 950. In previous years, the importation
performance in 2005, when drought in the growing and distribution of the subsidised fertilizer was limited
season resulted in a 9.3 per cent drop in agricultural to parastatal enterprises only – the Agricultural
332 output, with the smallholder component of Malawi’s Development and Marketing Corporation (ADMARC)
agriculture sector contracting by 11.7 per cent. In and the Smallholder Farmers Fertilizer Revolving Fund
2006, the agricultural sector as a whole and the of Malawi – and this policy, together with uncertainty
smallholder component in particular bounced back, surrounding the extent and/or timing of the subsidy
growing at 11.8 and 14.2 per cent, respectively. had seriously undermined private-sector producers of
fertilizer. The 2006/07 subsidy is being implementing
Good rains in the 2005/06 growing season resulted through a coupon system, which has allowed limited
in substantially better yields for almost all crops. Maize participation of the private sector.
production is central to the economy of Malawi, and
the success or failure of the crop is crucial for national Tobacco is the mainstay of Malawi’s economy and
food security and has a major impact on overall exports of this cash crop account for more than 50 per
economic performance. A combination of good rains cent of foreign-exchange earnings. For the same reasons
in 2005/06 and the successful implementation of a as in the case of maize, tobacco production also recovered
Government services
Private social services
8.7%
Finance, insurance and business services 2.2% Agriculture
6.4% 34.6%
23.5% 2.3%
Distribution 1.6% Mining and quarrying
12%
3.1%
Manufacturing
Construction Utilities
Source: Authors’ estimates based on National Statistics Office data.

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Malawi
strongly with the production of 109 800 tonnes in the Production of groundnuts, paddy rice, sorghum,
2005/06 season, up from 72 500 tonnes in the 2004/05 millet, pulses, cassava and sweet potatoes all recorded
season, an increase of 52 per cent. Nonetheless, improved yields in 2005/06 of a similar order of
continuing weaknesses in the prices offered on the magnitude to that seen in the tobacco and maize sub-
floors of Malawi’s tobacco-auction markets disappointed sectors. Only cotton experienced declining output in
farmers, and led to an ugly war of words in the press 2005/06.
between President Mutharika and the multinational
tobacco buyers. Changes in the international terms of Malawi’s manufacturing sector is small and accounts
trade for tobacco spell an uncertain future for Malawi’s for just 11 per cent of GDP, down from a high of
main crop, yet attempts to diversify Malawi’s economy 32 per cent in 1992. The manufacturing sector is also
away from reliance on tobacco have had only very inward-looking as shown by the fact that only 14 per
limited results. Farmers suspect that the low prices cent of output is exported. Evidence from the recently
offered by buyers result from collusion. This is due to completed Investment Climate Assessment (ICA),
the fact that although all tobacco is sold through 2006, of Malawi, which surveyed 306 manufacturing
auction, the vast majority of tobacco is bought by just firms throughout Malawi, suggests that Malawi possess
two buyers. The Government of Malawi has resisted a comparative advantage in the region in terms of low-
attempts by buyers to shift towards contract-farming, cost labour. In terms of total factor productivity,
which would reduce uncertainty for farmers and provide however, that is, taking into account the relative costs
for improved yields through the provision of direct and returns to both labour and capital together, Malawi’s
extension services to growers. A recent World Bank cost advantage evaporates. The ICA survey responses
study has highlighted a number of institutional problems suggest that macroeconomic instability is the biggest
facing Malawi’s tobacco sector, and there is significant perceived constraint to private-sector performance, 333
evidence to suggest that producers bear the weight followed by access to finance, problems in the supply
of sector inefficiencies, conflicts of interest and of electricity, the availability of skilled workers, crime
governance failings. and corruption.
Sugar has become increasingly important to the While Malawi is not endowed with mineral
economy of Malawi and exports reached $46.9 million resources on the scale of neighbouring countries, there
in 2006. The major determinant for increased export is significant potential for natural-resource extraction
revenues was a rise in Malawi’s quota in the lucrative to play a meaningful role in the economy. Very high
European Union (EU) market. In recent years, Malawi transport costs, together with insufficient power capacity,
has also managed to make inroads into non-preferential have tended to render Malawi’s known mineral deposits
markets in Kenya, Tanzania and Egypt, where prices unprofitable to develop. Work on a study of the
are barely a quarter of those earned in the EU and the commercial feasibility of extracting uranium oxide
United States. This demonstrates the competitiveness from deposits in Kayelekera in the far north, however,
of growing sugar in Malawi, and indeed the proposed is at an advanced stage. Changes in the international
reforms to the EU sugar protocol announced in late environment for nuclear power have driven up uranium
2005 (envisaging a 36 per cent drop in the price of sugar prices, and the mean average of various estimates
within the EU) are unlikely to trouble Malawi’s sugar suggests that once extraction is operating at full capacity
industry as much as other Africa, Caribbean and Pacific in 2008, uranium could become Malawi’s second biggest
country producers. Starting in 2009/10, the EU sugar export after tobacco, and account for 20 per cent of
market will be tariff- and quota-free for all Least exports and 5 per cent of GDP.
Developed Country producers under the terms of the
Everything But Arms initiative, and hence there is great Regarding the components of final demand, growth
potential to increase production and exports of sugar of private investment was weak in 2006 and public
to what will still be a market with restricted access. investment declined. Yet the share in GDP of gross

Malawi

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)
GGross capital formation 13.1 11.0 -0.2 24.6 11.1

Public 8.6 7.3 -1.5 26.1 7.4
Private 4.4 3.7 2.4 21.7 18.2
Total Consumption 92.3 122.9 6.6 1.2 3.6

Public 14.4 16.8 6.0 6.5 6.6
Private 77.9 106.1 6.7 0.3 3.0
External Demand -5.4 -33.9

Exports 32.1 26.7 -6.5 5.6 4.7
Imports -37.5 -60.6 -7.3 1.1 4.7
Source: National Statistics Office data; estimates (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/182164856054
capital formation in the public sector has consistently Fiscal Policy

exceeded capital formation in the private sector. In
1980, Malawi was managing to invest 25 per cent of Malawi’s recent fiscal-policy objectives have been
GDP, while savings were running at 17 per cent of to return the primary balance to surplus and to reduce
GDP. More recently, however, the overall investment the overall deficit so as to permit a reduction of domestic
334 share in GDP has been about half of that. Maintaining debt. This policy has been implemented through tight
annual growth rates of 6 per cent and above would be controls on recurrent expenditures. Despite the
required to achieve meaningful poverty reduction in devastating effects of the food crisis in 2005/06, fiscal
Malawi, which in turn would require investment of an objectives were broadly achieved. As a result of good
intensity, not least in the private sector, much higher performance of the Malawi Revenue Authority aided
than that possible with investment funds provided by by an increase in grants, total revenue increased to
development partners. Nonetheless, the outlook is for 44.1 per cent of GDP up from 37.5 per cent in 2004/05.
strong growth in the volume of both public and private Malawi has been heavily dependent on outside assistance
investment in 2007 and 2008 as the government directs throughout its history, and it is highly unlikely that this
more funds into capital expenditure and anticipated will change in the short or even medium term.
increases in foreign inflows materialise.
Development assistance accounted for 42 per cent
of expenditure in the 2006/07 budget. While the
Macroeconomic Policies government has placed agriculture, irrigation and
infrastructure as key budget priorities in order to
The Mutharika administration has invested significant support economic growth, donor spending is still
political capital in restoring macroeconomic stability, overwhelmingly in the social sectors. As of March
something that had eluded Malawi in previous years. 2006, some 51 per cent of aid was classified as
Progress since 2003/04 has been relatively good, and fiscal supporting “social development”, 12 per cent
discipline was maintained during the 2004/05 and supporting “good governance” and only 13 per cent
2005/06 budgets. This progress was rewarded by the each in support of “sustainable economic growth” and
restoration of the Poverty Reduction and Growth Facility “infrastructure,” respectively.
support from the IMF in August 2005, and more recently
by the attainment of irreversible debt relief under the Increased revenue facilitated a significant increase
HIPC Initiative in September 2006. in total expenditure and net lending in 2005/06, much

Malawi

1997/98 2002/03 2003/04 2004/05 2005/06 2006/07(e) 2007/08(p)
Tax revenue 16.4 17.0 19.5 22.0 21.8 21.2 20.7
Grants 4.2 6.7 12.2 12.5 19.2 17.6 16.0
Interest 4.2 6.9 10.6 8.7 6.6 4.8 3.6
Primary balance -2.6 -4.8 2.8 3.1 3.6 3.3 -3.1

Overall balance -6.8 -11.6 -7.8 -5.6 -3.0 -1.5 -6.7
Source: Reserve Bank of Malawi data; estimates (e) and projections (p) based on authors' calculations.
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of which was needed because of an escalation in the by about two percentage points. This was a welcome
cost of maize and fertilizer imports. Nonetheless, the step in further reducing the cost of finance to the
fiscal outturn improved thanks to debt reduction and private sector which had faced interest rates as high as
the consequent reduction in interest payments. This 45 per cent in 2004. Monetary policy however remained
enabled the government to make some headway towards tight in 2006 as the Reserve Bank used open market
reducing the domestic debt. Having peaked at 25 per operations to reduce liquidity. 335
cent of GDP in 2003/04, domestic debt is estimated
to have declined to 20 per cent of GDP by the end of The Reserve Bank’s policies and the improved
fiscal year 2005/06, and is projected to fall to 16.5 per food availability in 2006 were significant in moderating
cent in 2006/07. For the first time in several years, the consumer-price inflation, which fell to 13.4 per cent
government was able to retire some domestic debt at in 2006, down from 15.6 per cent in 2005. Food
the same time as it cleared arrears to almost all small inflation in particular fell sharply in 2006, to 4.2 per
creditors and a sizeable amount of arrears to the public- cent, with improved food availability, down from
utility companies. Recent progress notwithstanding, 17.2 per cent in 2005. On the assumption of
domestic debt continues to constitute a large burden favourable weather conditions and with the mitigating
on government resources. Political pressures on effects of the irrigation programme that the
government spending and the country’s vulnerability government has put in place, inflation is projected to
to external shocks could easily reverse achievements in decline further to 8.2 per cent and 7.2 per cent in 2007
bringing domestic debt under control. and 2008, respectively.
Monetary Policy External Position
One of the principle objectives of the Reserve Bank Malawi’s trade performance has deteriorated
of Malawi is to achieve and then maintain inflation at continually, contributing to a steadily worsening
single-digit levels. This policy is anchored by a reserve current-account deficit. Little change is expected in
money target requiring periodic adjustments to base 2007 (see Table 3) but in 2008, improvements in
interest rates. Progress in controlling inflation allowed services, grants and net factor payments are expected
the Bank to reduce the base rate from 25 to 20 per cent to cause the current account to improve despite little
in November 2006. And the interest rate spread between change in the balance of trade in goods. The main
commercial bank lending and deposit rates narrowed reason behind the dismal situation is an export

Malawi
1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 2.3 -14.2 -16.4 -18.3 -22.1 -21.3 -22.1

Services -7.7 -8.5 -8.8 -9.8 -8.9 -8.8 -9.0
Factor Income -2.2 -1.9 -2.4 -1.9 -1.4 -1.3 -0.9
Current transfers -0.8 9.9 15.1 14.4 13.6 12.1 19.1
Source: Reserve Bank of Malawi; estimates (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/635587417684
performance that has remained essentially flat for the Average export prices rose from $0.46 to $0.49 per
past seven years. Sustained export growth in real terms kilogramme while export volumes increased from
has not been achieved; when the performance of one 88 800 tonnes to 95 400 tonnes. Total export receipts
sector has improved, the performance in other sectors were $46.9 million.
has worsened. A new bilateral trade agreement with
Mozambique (signed in December 2005) and a Cotton exports continued to decline in 2006, falling
renegotiated agreement with Zimbabwe (signed from $15.6 million in 2005 to $7.6 million in 2006.
in July 2006) present opportunities for improved Average export prices fell slightly from $1.06 to $0.97,
export performance with two of Malawi’s main but the major cause of declining revenues was a
336 trading partners. continued drop in volumes. Export volume in 2006
was 7 800 tonnes, down from a high of 25 600 tonnes
Average export prices for tobacco at the border fell in 2004.
from $2.29 in 2005 to $2.22 in 2006. This weakening
of the international market for tobacco is at least part Garments exports also declined slightly in 2006.
of the reason for the lower prices for leaf tobacco on Undoubtedly, the expiration of the Multifibre
the auction floors that attracted so much attention Arrangement – the World Trade Organisation
during the year. The volume of tobacco exports in Agreement on Textiles and Clothing – in January 2005,
2006 actually increased marginally, rising from 121 700 which has made the US African Growth and
tonnes to 122 600 tonnes in 2006. Gross tobacco Opportunity Act market more competitive, had an
export revenue fell, however, from $279 million to impact. The Malawian garment sector may remain
$271.7 million due to lower prices. under pressure in the coming years given the uncertainty
surrounding the future of the South African market
The performance of tea exports improved slightly under the Malawi, Mozambique, the United Republic
in 2006 as average prices increased slightly, up to $1.13 of Tanzania and Zambia – Southern African Customs
per kilogramme in 2006 from $1.10 per kilogramme Union agreement.
in 2005, and stable volumes translated into a small
increase in gross export receipts. Tea regained its position Despite problems in accessing the US and EU
as the second most important export product for Malawi markets due to difficulties in ensuring that Malawi
in 2004 and remained in that position in 2006 with horticultural products pass sanitary and phytosanitary
total export revenues of $48.5 million. regulations, Malawi actually enjoys positive trade
relations with most partners in the developed world.
The sugar sector recorded a strong performance The main difficulties with accessibility are with nearer
during 2006 as rising prices and rising volumes trading partners in the region, principally South Africa,
translated into a significant increase in export revenues. Mozambique and Zimbabwe.

Malawi

700
600
500
400
300
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF. 337

http://dx.doi.org/10.1787/077702230168
In line with expectations, the kwacha depreciated Structural Issues

gradually during the first half of 2006 falling from
around MWK 124 per $ to around MWK 140 per $ Recent Developments
by the middle of the year, when inflows of tobacco
earnings stabilised the currency. The depreciation had Improvements in macroeconomic performance and
the effect of slowing growth in import demand budgetary discipline have resulted in improvements in
somewhat, as a result of which international reserves the private-sector-enabling environment. Similarly, the
were expected to increase somewhat and to be sufficient greater private-sector focus in the Malawi Growth and
to cover two months of imports by the end of 2006. Development Strategy (MGDS) represents a clear
It is official policy to operate a more transparent and improvement on the previous Malawi Poverty
flexible exchange-rate regime. Reduction Strategy, which provided only scant coverage
of private-sector issues. However, addressing the longer-
As a result of the HIPC and Multilateral Debt term infrastructural issues that hamper trade such as
Relief Initiatives, the net present value of external debt high transport costs and the poor quality of utilities will
declined from 229 per cent of exports at the end of 2005 take more time. Similarly, while the government has
to 32 per cent at the end of September 2006. HIPC made commitments to improving the investment
debt relief can be seen as a massive vote of confidence climate, its signals have been mixed and dialogue
in Malawi’s fiscal management, but the impact in between the public and private sectors remains weak.
financial terms is more limited given that the greater
part of the country’s debt burden is kwacha- As in many developing countries, the legal operating
denominated domestic debt. environment for private-sector enterprises in Malawi

Malawi
is rather inhospitable. Enterprises face numerous hurdles Restructuring of the ADMARC also moved to an
in terms of red tape, regulations and requirements in advanced stage during 2006. The intention of the
carrying out everyday business activities. By the World government is to separate the ADMARC into two
Bank – International Finance Corporation Doing distinct parts: a public-sector, service-delivery part,
Business indicators, Malawi is ranked 96th out of 155 and a private-sector, commercially independent part.
countries, and 9th out of 36 countries in sub-Saharan
Africa. While such qualitative surveys only give an In addition, the loss-making Malawi Development
indication of the enabling environment for business, Corporation was liquidated in 2006 and ceased all
it is clear that the private sector in Malawi suffers from operations. The government is currently negotiating
a heavy regulatory burden. with the private sector and the World Bank for the
establishment of a new Malawi Development Fund,
Excessive regulation creates obstacles to the process which would focus on providing support to small and
of market development by raising the costs of business medium-sized enterprises.
entry and growth. In particular, excessive regulation and
inadequate institutions for property rights and the rule The drafting of a policy for public-private
of law create barriers to transition from the subsistence partnerships (PPPs) began in late 2006 with a view to
and very small-scale economy to the modern more establishing a PPPs unit in the Ministry of Finance
productive sector. Many entrepreneurs in Malawi tasked with facilitating private-sector investment into
remain trapped in the informal private sector due to public infrastructure.
the high costs of formalisation. Such enterprises are
therefore not able to grow and benefit from economies Access to Drinking Water and Sanitation
338 of scale or access the additional benefits of formalisation,
such as access to commercial-bank finance and business- Malawi is a country that has recently begun to
development services. Malawi’s private sector is experience a certain degree of water stress due to its high
characterised by a “missing middle” with very few population density. Its renewable water resources per
enterprises in between the micro-enterprises sector and capita are estimated to be 1374 m3 in 2003-07. Clearly,
larger companies. the sector requires careful management, but a
comprehensive programme does not yet exist. The
Malawi’s privatisation programme continues to be expansion of irrigated agriculture in order to reduce the
implemented, although at a very slow pace. In 2006, effects of weather shocks on agricultural output is a key
the government took a number of key steps to reform component of the government’s development plans, and
and restructure Malawi’s parastatal enterprises. The it is not yet clear how water and sanitation for household
highlight was the privatisation of Malawi purposes will be affected by this approach.
Telecommunications Limited (MTL) in January 2006.
Despite a “stop-start” process, legal challenges to the Formal water and sewerage services in Malawi are
sale of MTL and significant political opposition to the provided by five government-owned, parastatal water
process, the government finally agreed to the sale of boards for Blantyre, Lilongwe and the Northern, Central
80 per cent of MTL to a consortium led by Press and Southern regions. All five water boards are loss-
Corporation for $30.7 million. Ownership of MTL will making and are generally characterised by weak
remain in domestic hands, although technical- governance and political interference.
management services will be provided by a unit of
Deutsche Telecom. Malawi has one of the lowest fixed- Access to safe drinking water is one of the key MDGs
line telecommunications density rates in Africa and it and an area where Malawi has made reasonable progress
is expected that independent private-sector management in recent years. Data from the 2004/05 Integrated
will be able to expand the provision of telecommu- Household Survey shows that 66.4 per cent of households
nications services. in Malawi have access to an “improved water source”

Malawi
(defined as being piped into the dwelling, piped outside, target of 75 per cent of all households having an improved
from a communal standpipe, or from a hand pump, water source by 2015. Piped water supplies are the most
borehole or protected well). This is slightly above the common form of water supply in urban areas, but much
average for sub-Saharan Africa (58 per cent), but more less prevalent in rural areas where boreholes and protected
progress will be required for Malawi to meet the MDG wells are the main source of drinking water.
Table 4 - Proportion of Households with Access to Safe Water and Distribution

of Households by Main Source of Drinking Water, 2005
Household Source of drinking water
proportion
with access to Piped into Piped outside / Hand pump / Unprotected River, spring,
improved dwelling communal borehole / well lake and other
water source standpipe protected well
Malawi 66.4 2.2 17.7 46.5 25.4 8.2

Urban 85.1 12.6 62.3 10.2 11.1 3.8
Rural 63.9 0.8 11.7 51.4 27.3 8.8
North 63.7 0.5 13.1 50.1 24.2 12.1

Centre 54.3 0.5 9.2 44.6 38.6 7.1
South 74.9 3.7 24.2 47.0 16.9 8.2
Source: Integrated Household Survey 2005.

http://dx.doi.org/10.1787/005151087878
339
The same survey indicates that 61.9 per cent of 36 per cent coverage average for sub-Saharan Africa.
households in Malawi have access to improved sanitation As with access to potable water, access to improved
facilities (defined as being either a flush toilet, a sanitation is higher in urban areas. Some 16.9 per cent
ventilation-improved (VIP) latrine or a traditional of all households have no toilet facilities.
latrine with a roof ). This is significantly above the
Table 5 - Proportion of Households with Proper Toilet Sanitation and Distribution

of Households by Type of Toilet Facility, 2005
Household Type of toilet facility
proportion
with access Flush toilet VIP latrine Traditional Latrine None Other
to improved latrine with without roof
sanitation roof
Malawi 61.9 2.8 1.8 57.4 20.9 16.9 0.3

Urban 78.3 14.0 3.9 60.4 18.8 2.9 0.0
Rural 59.7 1.2 1.5 56.9 21.2 18.8 0.3
North 53.7 0.8 0.9 52.0 35.0 11.1 0.2

Centre 63.9 1.4 1.0 61.5 15.1 20.7 0.3
South 62.0 4.0 2.5 55.5 22.3 15.4 0.3
Source: Integrated Household Survey 2005

http://dx.doi.org/10.1787/401167277433
The MGDS (Malawi’s new national development component of the strategy. The medium-term expected
plan, launched in 2006) addresses water and sanitation outcome listed in the strategy is to increase access to
issues as a key sub-theme under the infrastructure water to within 500 metres for all people by 2011, thereby

Malawi
ensuring that the basic water requirements of every the more serious development challenges that Malawi
Malawian are met while the country’s natural ecosystem faces. President Mutharika was elected in May 2004
is preserved. The main water and sanitation strategies for under the auspices of the United Democratic Front
achieving this expected outcome, as listed in the MGDS (UDF) party but within a year had left the party and
document include: empowering national authorities to established a new Democratic Progressive Party (DPP),
manage water resources using integrated water-resource allegedly due to UDF opposition to his anti-corruption
management approaches; establishing good monitoring campaign. The annual fertilizer subsidy remains one
systems; improving the quality of surface and ground of the most political contentious issues in Malawi, and
water and developing a system for pollution control; the successful delivery of the subsidy will probably be
improving sustainable access to water supply and sanitation one of the most important determinants for Mutharika’s
in urban, peri-urban and rural areas by, amongst others, re-election prospects in 2009.
establishing water-supply and sanitation systems using
demand-responsive and demand-driven approaches; Although by-elections in late 2005 and early 2006
establishing contingency water-supply reserves and produced the first six directly elected DPP members
sanitation backups; and integrating rural water supply with of parliament (MPs), Mutharika continues to govern
participatory hygiene and sanitation approaches. without a parliamentary majority. This has made it
difficult to pass legislation, and has held up the budget
Lack of resources has undoubtedly had a negative process and created a large backlog of parliamentary
impact on the ability of water boards to invest in bills awaiting approval.
maintaining water and sanitation infrastructure. Lack
of power-generating capacity and frequent blackouts The impeachment motion launched by opposition
340 also have an impact on the delivery of water services MPs in October 2005 fizzled out, but the legal wrangling
where water has to be pumped. The poor performance surround the use of Section 65 of the constitution,
of the Blantyre Water Board in particular has become which provides for the Speaker to declare vacant the
a major political issue, partly due to private-sector seat of any opposition MP who has crossed the floor
frustration over the intermittent supply of water, which to side with government, hangs over government
is especially damaging to Malawi’s food-processing operations.
industries. However, poor management is probably
the most significant factor in the poor performance of With GDP growth averaging below 3 per cent
Malawi’s water boards. Some 50 per cent of Blantyre (below 2 per cent since 2000), this has translated into
Water Board’s piped water is “unaccounted for”, and a modest 1 per cent increase in per capita income over
reducing the share of this by even a fraction would the past ten years. Malawi has a highly unequal income
have a significant impact on the board’s ability to distribution, with a Gini coefficient of 50.3. The
reinvest. Although the backlog of unpaid bills by public- proportion of the population with income less than $1
sector customers is being gradually addressed by the per day was 54.2 per cent in 1997/98 and has hardly
Ministry of Finance, the lack of operational changed since the last household survey was undertaken
independence and continued political interference in that year. Social indicators are also very poor. Malawi’s
means that it will be some time before public- and maternal-mortality rate is currently 984 maternal deaths
private-sector customers will be treated equally. per 100 000 live births and is also one of the highest
in the world.
Political Context and Human The national adult-literacy rate is still low at 63 per
Resources Development cent. It is higher amongst males (76 per cent) than
females (50 per cent). The overall youth literacy rate
Political issues continue to dominate the national is 76 per cent, which is higher than the adult literacy
agenda and divert high-level attention from addressing rate. Interestingly, there is not much disparity between

Malawi
the literacy of young females and males. The primary change to take place in Malawi. In 2004, only 5 per
gross enrolment ratio is 137 per cent. The rate is cent of women and 15 per cent of men who had sex
significantly higher for boys (144 per cent) than for girls in the past year reported having used a condom during
(130 per cent). These high enrolment numbers indicate their last sexual intercourse with any partner. At 1.8 per
that a large proportion of primary school pupils are over cent, condom use is alarmingly low amongst married
age for their grade. This could partly be explained by women. This may point to the difficulty that women
delayed enrolment and high drop-out as well as high face in negotiating the use of a condom with their
repetition rates. husband. Better-educated persons are more likely to use
condoms. For example, while 2 per cent of women
The 2004 Malawi Demographic and Health Survey with no education used a condom the last time they
found that 8 per cent of children aged 5 to 14 worked had sexual relations with any partner, the corresponding
for non-household members. About 40 per cent of proportion for women with secondary or higher
these children work without pay. Amongst children education is 14 per cent. The proportions for men are
who help around the house with household chores, 6 and 27 per cent, respectively.
68 per cent do these chores for an average of less than
4 hours per day and 2 per cent work for 4 or more hours The total fertility rate for women aged 15 to 49 has
per day. Overall, older children and children in rural declined from 7.6 births per woman twenty years ago
areas are more likely to be working. Girls are more to 6 in 2004. Contraceptive use, especially use of
likely than boys to do domestic work. It is particularly modern methods, has continued to rise since the early
worrisome that a recent International Labour 1990s and is one of the principal causes of the fertility
Organisation survey found that at least 71 per cent of decline. The prevalence of modern contraceptive
children were in the worst form of child labour. methods amongst married women aged 15 to 49 has 341
increased from 7 per cent in 1992 to 33 per in 2004.
Malawi, like the rest of southern Africa, has very The most popular contraceptive methods amongst
high levels of HIV prevalence. HIV prevalence at rural married women are injectables, followed by female
clinics increased from 12.1 per cent in 1999 to 14.5 per sterilisation and oral contraceptives.
cent in 2003. Much remains to be done for behavioural

.
Mali
Bamako
key figures
• Illiteracy rate (2006) 81
Mali
M ALI’S ECONOMIC GROWTH OUTLOOK remains A new strategic growth and poverty-reduction paper
favourable. After recording a 6 per cent growth rate in (DSCRP) has been drafted for 2007-11: the second
real gross domestic product (GDP) in 2005, growth generation of the strategic framework for the fight
in 2006 is estimated at 5 per cent and is expected to against poverty (CSLP)
Despite a slowdown in cotton
be around 4.7 per cent per year in 2007 and 2008. This should reinstate the
production, the primary sector
expansion would be due mainly to higher output in the deficiencies identified in the
grew in volume by 5.1 per cent
mining sector and a big increase in food-crop first. Amongst these, were a
thanks to good weather and
production. The good prospects are also explained by lack of explicit consistency
locust-prevention programmes.
a rising domestic demand helped by private and public amongst the CSLP, the
investment, especially in 2006. sectorial and regional strategies, and the state budget.
345
■ Mali - GDP Per Capita (PPP in US $) ■ West Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Mali - Real GDP Growth (%)
14 3500
12
3000
10
8 2500
6
2000
1500
2
0 1000
-2
500
-4
-6 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and national statistics and information-technology service (DNSI) data; estimates (e) and projections (p) based on authors’
calculations.
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Mali
Recent Economic Developments the continent’s third biggest gold producer after South
Africa and Ghana. The sector is attracting more and
In 2005, the primary sector recorded a 5.1 per cent more investors. In 2005 alone, 102 mining permits were
growth in volume. Total food crop production (millet, granted, 87 of them for gold. Given the exonerations
sorghum, rice and corn) stood at 3 367 200 tonnes in authorised under the mining code, however, the sector
2005/06, representing an increase of 18.4 per cent, makes a relatively limited contribution of around
which was higher than the 16.3 per cent increase in the 40 billion CFA francs to tax revenues. There are
previous agricultural season. Groundnut production was possibilities for diversification into phosphates, lithium,
virtually stable at 212 200 tonnes These good results bauxite and iron, and the Baraka Mali Venture
can be explained by more favourable climate conditions consortium and its Mauritanian, European and
and the anti-locust measures taken by the government, Australian partners have signed a so-called production-
as well as by implementation by the authorities of the sharing agreement for 5 of the 15 oil-prospecting blocks
programme for the development of irrigated zones and in the north of the country. First production is expected
the distribution of improved varieties of rice and maize. in 2008 although oil-transportation arrangements have
yet to be decided.
Cash-crop farming remains dominated by cotton.
Production in this sub-sector in the 2005-2006 season The secondary sector represented 16.2 per cent of
is estimated to be 8.3 per cent down on 2005/06 at GDP in 2005, when it showed a real increase of 6 per
536 700 tonnes. This reduction in cotton production cent compared with 2.7 per cent in the preceding year.
is related to a drop in the purchase price to producers, The increase in the growth rate is the result of a good
which fell from 210 to 160 CFA francs per kilogramme. performance by the construction sub-sector. The
346 The livestock sector showed real growth of 4.3 per manufacturing industry was in recession, however.
cent, reflecting the better condition of pastures in 2005.
Traditionally, animals are sold live on the principal The industrial sector remains modest in size,
markets of the sub-region but mainly in Côte d’Ivoire. accounting for less than 5 per cent of the 243 enterprises
declared and registered in the 2003 census. It is
Gold production rose 10 per cent to an estimated confronted with a difficult business climate – the
49.1 tonnes as a result of higher output at the Morila World Bank’s Doing Business 2006 report ranks Mali
mine and the start of activity at the Loulo mine in 146th out of 155 countries – and with competition
November 2005. New reserves were also brought into from the informal sector which makes use of
production in the south and west of the country in late counterfeiting and fraud (motorcycles, tyres, etc.).
2005, and two new mines, Tabakoto and Kalana, were The cost of factors such as electricity and transport also
due to open in 2006/07. Since 2005, Mali has become constitutes a handicap. Mali’s needs in electricity are
Other services
Agriculture
Government services 7%
11.5% 22.1%
Transport, storage and communication 5.4%
13% 16.1% Livestock, forestry and fishing

Wholesale and retail trade, transport and other services
6.3% 8.6%
9.9%
Construction, electricity, gas and water
Mining
Manufacturing
Source: Authors’ estimates based on DNSI data.

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Mali
currently higher than its share of production from the cane in the Ségou region and promote construction of
Manantali dam. The withdrawal of Énergie du Mali’s a processing plant. The public-private capital enterprise
principal shareholder, the Bouygues group’s Saur Sukala plans to bring into service another new sugar
International, in October 2005 illustrates Mali’s plant in 2007.
difficulty in defining an energy policy.
Sustained activity in the construction and energy
Agro-industry represents about 45 per cent of all sub-sectors has boosted growth in the secondary sector
the country’s industrial activity. The sector is despite the expected drop in production in the
characterised by the presence of big importers in virtual manufacturing industry. The continued implementation
monopoly positions. Huilerie Cotonnière du Mali of major programmes in the fields of health, education
(Huicoma), which produces cotton oil, is the country’s and rural infrastructure are largely responsible for high
biggest agro-food producer. Other notable growth in the construction sector. In 2006, there were
manufacturers are the Compagnie malienne de plans to build asphalt roads in the Malian interior
développement des textiles (CMDT) and the textile (26 billion CFA francs) as part of efforts to improve
producers Comatex and Bakatex (formerly Itema), access to the country, to continue construction of the
which use less than 10 per cent of the CMDT’s administrative centre (7 billion CFA francs) and to
production. Only beverages production is relatively build the Gao bridge (5.9 billion CFA francs).
diversified with two mineral-water plants (Le Lido SA
and Diago), a brewery (Bramali) and four plants The tertiary sector should benefit from the
producing sodas and fruit juices. Only one flour mill, continued extension of the mobile-telephone network
Grands moulins du Mali (GMM), is active in Bamako. through investments by Malitel and Ikatel (Orange),
There are also one confectionery, three plants producing the creation of a new airline (Cam) and the 347
pasta and biscuits, a large number of small bakeries and development of the activities of the rail enterprise
several milk-processing plants. In 2004, President Transrail SA. Banque régionale de solidarité (BRS
Amadou Toumani Touré declared that he wanted to Mali) and Banque Atlantique Mali should also expand
make agro-industry the priority of his investment their activities in 2006.
programme. A market could, therefore, open up for
foreign investors, notably in the fields of fruit and On the demand side, investment growth in the
vegetable processing and sugar production. The Markala private sector fell slightly from 2004 to 2005 despite
sugar project aims to develop the cultivation of sugar the opening of the Loulo gold mine and growth in

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 7.4 7.0 10.0 5.2 5.0
Private 12.4 14.2 10.0 5.5 6.0
Consumption 87.9 82.7 2.1 3.4 4.3

Public 18.7 17.1 7.0 5.6 5.6
Private 69.1 65.6 1.1 2.9 4.1

Exports 21.3 24.8 9.0 6.2 5.0
Imports -28.9 -28.6 6.4 3.3 5.2
Source: IMF and DNSI data; estimates (e) and projections (p) based on authors’ calculations.
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Mali
homebuilding, encouraged by intense activity on the Total expenditure and net loans rose 13.5 per cent
part of real-estate enterprises in the major cities. In from 712.3 billion CFA francs in 2005 to
2006, investment, specially in the private sector, is 808.8 billion CFA francs in 2006. Current expenditure
expected to recover slightly. Growth in total increased 8.6 per cent in 2006 over the previous year
consumption slowed down from 4.9 per cent in 2004 to 457.8 billion CFA francs. Capital expenditure in 2006
to 1.7 per cent in 2005 following a poor agricultural was up 33 per cent from 268.1 billion CFA francs in
season. The slowdown in final demand, in which 2005 to 356.6 billion CFA francs. The wage bill was
domestic consumption represents about 80 per cent, expected to rise 8.1 per cent from 137.8 billion CFA
continued in 2006. francs in 2005 to 149 billion CFA francs in 2006.
The deficit in the state’s financial operations, on a

Macroeconomic Policies commitment basis and excluding grants, stood at
48.9 billion CFA francs at the end of June 2006,
Fiscal Policy 3.4 billion CFA francs more than the deficit for the same
period the preceding year. The state of public finances
Total revenues and grants are estimated to have was even worse than initial forecasts. On the basis of
risen 12.3 per cent from 621.6 billion CFA francs in available data, however, the execution of the budget,
2005 to 698.2 billion CFA francs in 2006. Revenues on a commitment basis and excluding grants, resulted
alone increased 5.7 per cent to 535.7 billion CFA in a reduced overall deficit in 2006 compared with
francs. The trend is the same for tax revenues, which 2005 and was expected to remain stable in 2007 and
increased 5.3 per cent to 470 billion CFA francs in 2006. 2008. This development is essentially due to higher
348 The tax burden stood at 14.6 per cent, 0.8 per cent less capital expenditure, itself linked, notably, to the increase
than in 2005, supposing that no extra effort was made in available resources resulting from the forgiveness of
by the tax-collection services. The level of the tax debt due to the IMF within the framework of the
burden is below the 17 per cent minimum set by the Multilateral Debt Relief Initiative (MDRI). The level
Economic Community of West African States of execution of current expenditure remained virtually
(ECOWAS). Grants were up 41.3 per cent in 2006 at stable from one year to another, while capital
162.5 billion CFA francs. expenditure increased in 2006. Tax revenues also

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Total revenue and grantsª 20.0 21.9 21.2 21.6 22.7 22.6 22.4
Tax revenue 12.8 14.2 14.9 15.5 15.5 15.5 15.7
Other revenue 2.0 3.0 2.3 2.1 2.1 2.1 2.1
Grants 5.2 4.7 3.9 4.0 5.1 5.0 4.5
Total expenditure and net lendingª 22.3 23.2 23.8 24.8 24.4 24.4 24.9
Goods and services 3.6 4.4 5.2 5.0 5.4 5.3 5.5
Interest 0.7 0.8 0.7 0.6 0.6 0.5 0.3
Primary balance -1.6 -0.6 -1.9 -2.5 -1.1 -1.3 -2.2

Overall balance -2.3 -1.3 -2.6 -3.2 -1.7 -1.8 -2.5
Source: IMF and DNSI data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/645867532556

Mali
progressed in 2006 in relation to the same period the francs at the end of December 2006 – up 7.3 per cent
preceding year. on its level at the end of 2005. Credit to the economy
was estimated at 564.5 billion CFA francs in 2006,
In line with Mali’s 2006 convergence programme, 14.5 per cent higher than in 2005. This trend is the
revenue forecasts are based on the computerisation of result of a considerable increase in ordinary loans.
the tax services, which should improve the recovery
of value added tax (VAT). In addition, measures In Mali, the net external assets of the monetary
introduced at the end of 2005, notably the abolition institutions rose 27.9 billion CFA francs to
of tax exemptions for new vehicles, the introduction 492.4 billion CFA francs at the end of June 2006
of simplified tax arrangements for small enterprises against the previous month. This increase is essentially
and the abolition of tax exemptions for the Banque due to the 26.5 billion CFA francs increase in the assets
nationale de développement agricole (BNDA) should of the central bank. On an annual basis, the net external
produce their full effect in 2006. There are also plans position of the monetary institutions increased by
to reduce or suspend taxes on imports from the West 110 billion CFA francs. Outstanding internal credit
African Economic and Monetary Union (WAEMU) stood at 375.5 billion CFA francs at the end of June
and, in line with the decree adopted in December 2006 compared with 397 billion CFA francs the
2005, to introduce a new mechanism for fixing the preceding month. This situation resulted from the
prices of hydrocarbons, based on world prices and in 24.2 billion CFA francs improvement in the net position
line with community legislation on the taxation of of the government. On an annual basis, internal credits
imported oil products. to the economy recorded a 23.6 billion CFA francs or
4.8 per cent fall.
At the level of tax authorities, implementation of 349
the tax-service action plan will be reinforced as will the Affected by the increase in the prices of food, oil
system for on-site accounting auditing. Expenditure products and transport, the average inflation rate was
policy will direct external aid towards investment. 3.3 per cent between January and May 2006, compared
Investment expenditure on internal resources will aim to 5 per cent for the same period in 2005. Revised
above all to increase allocations to education, health, forecasts indicate that there was a further reduction in
infrastructure and the strengthening of institutional this figure over the rest of 2006, which was linked to
capacities. the expected improvement in cereal production and
government initiatives to reduce the price of essential
Monetary Policy goods and services such as water and electricity. Average
inflation in 2006 is estimated at 2.1 per cent compared
Monetary and credit policy is run at regional level to 1.6 per cent in 2005, according the CBWAS.
by the Central Bank of West African States (CBWAS),
the principal objective of which is to preserve the parity External Position
between the CFA franc and the euro and control
inflation. Monetary policy in the zone is therefore Mali’s foreign trade has been marked by a reduction
rigorous in the same way as that of the European in its current account, excluding official transfers, which
Central Bank and backed by an appropriate level of stood at 6.3 per cent of GDP in 2005. This movement
international reserves. The only difference lies in the is the result of an increase in exports, notably a 46 per
fact that the CBWAS takes into account the economic cent increase in sales of gold, resulting from higher
situation of its member countries in determining its prices and production. In 2006, according to the
monetary policy. The forecasts at the end of December International Monetary Fund (IMF), the terms of trade
2006 indicated an increase in money supply following should improve by 14 per cent as the strong increase
an increase in net external assets and internal credit. in gold prices compensates for the rise in the price of
Money supply was estimated to be 902.8 billion CFA imported oil. Gold represented 65 per cent of total

Mali

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 0.3 -1.4 -2.3 -2.3 1.8 3.4 1.9

Services -9.1 -6.1 -5.8 0.0 -1.8 -1.8 -2.0
Factor income -1.7 -3.8 -3.9 -4.0 -3.6 -4.4 -5.3
Current account balance -6.6 -6.4 -8.2 -2.2 0.0 0.3 -2.2
Source: CBWAS and IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/362681712882
exports in 2005. The state is seeking to improve the 30.1 billion CFA francs in 2003 and 28.6 billion CFA
external balance by implementing policies and structural francs in 2004.
reforms aimed at improving the efficiency and the
competitiveness of the cotton and banking sectors. With 68.5 per cent of its debt owed to multilateral
The expected improvement in the terms of trade should creditors, Mali is amongst the countries benefiting
produce a revival of exports, hence a reduction of the from the cancellation of their debt to multilateral
current balance of payments deficit. In October 2005, institutions decided by the G8 heads of state in July
the government launched a programme to promote 2005. The debt is considered sustainable, given that
competitiveness and diversification in agriculture the stock of external arrears was completely absorbed
350 through the processing and marketing of market- in 1994 and, since then, all repayments dates have
gardening products such as tomatoes, mangoes and been respected, for interests as well as for capital. The
green beans for the European and American markets. stock of internal debt was also totally cleared at the
The increase in the price of oil, which makes air freight end of 1999, and there has been no accumulation
more expensive, could represent an obstacle to the since that date. Debt cancelled under the MDRI in
development of these export lines. 2006 is estimated to have come to 1 085.2 billion CFA
francs, to which the 20.5 billion CFA francs cancelled
On 23 June 2004, Mali concluded a new under the HIPC Initiative should be added. As a result,
programme within the framework of the Poverty the total amount of debt outstanding should be reduced
Reduction and Growth Facility (PRGF) which provided to 745.7 billion CFA francs and the ratio of debt
it with 9.33 million in special drawing rights for 2004- outstanding to GDP is estimated to have been brought
07. In 2003, the World Bank adopted a country down from 60 per cent in 2005 to 23.2 per cent in
assistance strategy for Mali for 2004-06, which should 2006 and debt servicing to no more than 4 per cent
yield $400 million in aid, 30 per cent of which in the of exports.
form of grants.
According to the 2006-08 multi-year programme,
Mali reached the completion point under the outstanding debt, excluding relief, is projected to
enhanced Heavily Indebted Poor Countries Initiative increase from 1 736 billion CFA francs in 2006 to
(HIPC) in February 2003. In March 2003, the country 1 811 billion CFA francs in 2007 and 1 843 billion CFA
reached agreement with the Paris Club to cancel all its francs in 2008. For this period, 87.7 billion CFA francs
eligible debt. Mali started to benefit from HIPC of additional resources are expected, distributed as
resources in 2000. In the course of 2000-04, it obtained follows: 25.9 billion CFA francs in 2006,
112 billion CFA francs, distributed as follows: 26.6 billion CFA francs in 2007 and 26.2 billion CFA
2.6 billion CFA francs in 2000, 23 billion CFA francs francs in 2008. The expected resources will be budgeted
in 2001, 27.5 billion CFA francs in 2002, for the completion of poverty-reduction projects.

Mali

120
100
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF. 351

http://dx.doi.org/10.1787/152414452866
Structural Issues In October 2005, the government undertook a

study of the system of benefits and bonuses linked to
Recent Developments wages so as to evaluate incentive systems. The study was
due to be completed for December 2005. A report on
A number of reforms have been undertaken in the the revision of criteria for the allocation of social-security
public sector, which show the commitment of the state resources was finalised in October 2005. An actuarial
of Mali to the process of good governance. The report study of the Caisse de Retraite du Mali (CRM) public-
of the general controller, whose job it is to verify the sector pension scheme showed that, in the absence of
regularity and sincerity of public-revenue and - reform, the operating deficit will rise to an unsustainable
expenditure data, contained the conclusion of the level. Following consultations with employer and
enquiries carried out between 2004 and 2006, notably employee organisations, an inter-ministerial committee
with regard to VAT collection and repayment, customs proposed to the higher civil-service council in May
duties and associated taxes, hydrocarbons and public 2006 a series of reforms aimed at progressively reducing
contracts. With regard to the collection and repayment the CRM’s financial deficit in the medium term. Given
of VAT and associated taxes, the inquiries brought to the potential impact of these reforms on medium-term
light a significant reduction in state revenues, amounting budget prospects, the state has committed itself to
to 13 billion CFA francs. At the same time, civil society submitting relevant legislation to the National Assembly
has begun organising itself so as to be able to contribute for the necessary reforms with a view to re-establishing
to the fight against corruption and financial delinquency. financial balance at the CRM by 2010.
Various associations have come into being, including,
amongst others: i) Transparency Mali; ii) the national The government has also begun implementing a
watch for the fight against corruption; and iii) the medium-term action plan to improve the management
Malian network of journalists against corruption. of public finances, notably by limiting tax exemptions

Mali
accorded under the mining and investment codes. The Finagestion decided to withdraw from the enterprise’s
government has committed itself for 2006-08 to capital through the sale of its stake to its partners in
reinforcing audit capacities, supervising public contracts EDM, i.e. the Aga Khan Fund for Economic
and accounting for expenditure at regional level. It Development subsidiary Industrial Promotion Services
also plans to extend the public treasury’s computer (IPS/WA) and the state of Mali. This decision followed
network and to enlarge coverage of budget accounts. divergences between the government and the private
concessionaire regarding price levels and energy-supply
The state is also pursuing its privatisation policy development plans, and the investment projects
with the objective of expanding the role of the private associated with them. The “re-nationalisation” of the
sector in the economy and, at the same time, reinforcing two sectors took effect after the final meeting of the
budgetary policy. The government has committed to Finagestion board. For EUR 200 million, the state of
completing the privatisation of the CMDT by 2008. Mali recovered the majority stake in EDM, which rose
It has drawn up a new schedule, which puts back full from 40 per cent to 66 per cent. At the moment, the
privatisation of the enterprise from 2006 to 2008 so enterprise is having difficulty supplying electricity and
as to better prepare producers and the private sector water to its 250 000 subscribers. EDM is also grappling
for the fundamental changes to come. A new with massive fraud and a considerable level of unpaid
mechanism for fixing producer prices came into effect bills. Trafficking of metres and illegal tapping of water
in May 2005, in time for the 2005/06 season. On 6 and electricity are estimated to have caused the enterprise
March 2006, the council of ministers opted for a losses totalling EUR 10 million (7 billion CFA francs)
zoning system involving the establishment of four in a single year. As for arrears, they are estimated at
private-sector ginning enterprises. The operational around EUR 15 million (10 billion CFA francs). EDM
352 scheme was due to be submitted to the council of management intends to carry out checks followed by
ministers in September 2006. wide-ranging communication campaigns to persuade
the public not to engage in fraud.
After numerous difficulties, the privatisation of
Huicoma, which was authorised by a law passed on With regard to the restructuring of the banking
February 27 1988, was finalised. The Malian state system within the framework of the financial sector
decided to sell the enterprise to a Malian investor for development project (PDSF), the planned privatisation
9 billion CFA francs in what was the principal advance of the Banque de développement du Mali (BDM SA)
in the privatisation field in 2005. and the Banque internationale du Mali (Bim SA) have
suffered numerous delays. A new timetable for the
The plan for the privatisation of the Société des privatisation of the Bim was adopted in November
Télécommunications du Mali (Sotelma) was finalised 2004 following the completion of a period under
by the government under the aegis of the provisional administration and the appointment of a
telecommunications regulatory commission. The sale new management team. Originally planned for early
of a 51 per cent capital stake of the enterprise had been 2005, privatisation of the Bim has been delayed and
due to take place in 2004 but was finally postponed could be undermined altogether for the simple fact
and should now take place in 2007 at the latest. It is that no Malian bank is able to present a credible bid.
important to note that Sotelma and its mobile telephone A call is due to be made for bids for the state’s shares
subsidiary Malitel are to be privatised together and in the Bim. As for the BDM, the intention was to
sold to the same buyer. carry out a joint sale of the shares held by the state and
the CBWAS once the two shareholders had agreed on
The water and energy sectors have been in crisis since a common course of action. Restructuring of the Banque
2005. They are run by a single supplier, EDM SA, de l’Habitat du Mali (BHM) with the support of the
which was sold to the Bouygues group in 2000. In World Bank is also planned. In November 2005, the
October 2005, however, the Bouygues-group enterprise government recapitalised BHM by converting deposits

Mali
into equity. The government also initiated an audit of Under the terms of the sub-regional action plan for
the non-performing loans of all commercial banks with Integrated Water Resource Management (IWRM), the
the aim of drawing up a plan for restoring the balance government has set up an institutional mechanism at
sheets of credit establishments. the national level for the definition and implementation
of IWRM. Local committees and agencies will be in
Mali has great tourist potential. According to charge of managing water basins with strong
available statistics, the country has 244 accommodation participation by the local populations. As part of this
establishments providing 3 927 rooms and 5 066 beds. process, a Malian national water partnership was set
The government intends to develop the country’s hotel up in 2003 as an association for social mobilisation,
network, notably, through projects to build an Accor information sharing, training and action for the
group Ibis hotel in Mopti in 2005 and extend the application of IWRM principles. It is the focal point
Résidence Komé in Bamako. A law passed on 3 June of the Global Water Partnership in Mali.
2002 offers particular advantages to tourism enterprises,
including exemption from professional tax, commercial The national strategy for the development of the
tax and customs duties on equipment. At institutional supply of drinking water and sanitation (AEPA) in
level, different decrees have been passed with the aim rural and semi-urban areas in Mali, which was adopted
of increasing tourist frequentation by 2007. The recently in March 2000, constitutes the basic framework for all
created airline enterprise Compagnie aérienne du Mali programmes and projects in the sector. Through the
(Cam) was due to offer flights from Paris from the end 1999 sectoral policy letter for drinking water and
of 2005. electricity and the March 2000 ordinance on the
organisation of the public-sector drinking-water service,
The state has undertaken major investments in the government expressed its intention to disengage the 353
infrastructure. Numerous projects, which have already state from operational activities in favour of reinforcing
been financed, have been programmed for 2005-10. its planning and regulatory capacities and serving as a
With European Union financial support, Mali has provider of support and advice to those involved. Thus,
begun rehabilitating the road corridors leading to the the state has transferred its powers as provider of public
principal ports of the sub-region – Dakar, Nouakchott drinking water and sanitation to the local authorities
and Conakry. Alongside these major road projects, but maintains an important role in order to urge that
2 000 kilometres of internal roads, 670 of which the prices for these services should be set to cover their
financed by the World Bank, were due to be delivered economic cost. In July 2006, 301 communes had
by 2006. Following the same logic of improved access benefited from these transfers of power. More than
to the country, a road authority was set up with the aim 250 management-delegation contracts had been signed
of putting road maintenance into the hands of the between municipalities and operators, which in their
private sector. Work by public-sector bodies has been great majority are formal user associations.
stopped and current maintenance transferred to private-
sector enterprises. The water code adopted in January 2002 sets out
the procedures for managing and protecting resources
Access to Drinking Water and Sanitation by defining the rights and obligations of the state, local
authorities and users. It recommends the establishment
Mali has great water-resource potential in the form of public water-service development funds and sets up
of perennial surface water, non-perennial surface water a national council, regional and local councils, and
and underground water. These resources are very largely water-basin councils, which are in charge of giving
superior to the country’s needs and, subject to their being opinions and making proposals on water-resource
well-managed, should, therefore, be able to meet those management and development projects. Apart from the
needs in due course. The resources are, however, very different policy components elaborated since more
unevenly distributed over the country. than 10 years ago, the central feature of the government’s

Mali
current strategy is the national water-access plan In certain large cities – only 16 are involved – the
(PNAE), which was drawn up in 2003 and which was principal protagonist is EDM SA, which is also in
supplemented in 2004 by a water-access initiative, charge of energy distribution but over a wider area.
which itself was partly inspired by the African Regulation of drinking water supply in urban areas
Development Bank. At the start of 2005, the has been put by the state in the hands of the regulatory
government had the idea of setting up an agency to commission for electricity and water (CREE).
oversee project execution, the Agence malienne pour
l’eau et l’assainissement (Amepa), which is relatively The coverage rate is very uneven from a geographical
autonomous from a budgetary and statutory point of point of view. Certain regions are penalised by heavy
view and which was to take over a large part of the constraints such as isolation and low population density,
present functions of the national hydraulics department which make the organisation of upkeep and
(DNH). This new institution should simplify and maintenance services extremely problematic, whether
accelerate project implementation procedures without for hand pumps or small networks. The rate of access
municipalities’ losing their role of promoter. to tap water, which stood at 6.4 per cent in 2001, had
risen to 8.6 per cent in 2005. The rate of access to
The whole of the water sector is placed under the drinking water at standpipes rose from 7.23 per cent
responsibility of the Ministry of Mines, Energy and to 8.5 per cent during the same period. That of access
Water (MMEE), the operational structure for which to drinking water from the EDM network rose from
is the DNH. The MMEE is responsible for inter- 13.6 per cent to 17.1 per cent for the period. In urban
ministerial co-ordination and all policies in the sector. areas, the access rate increased from 50.9 per cent to
It has the role of supervising the development and 56.7 per cent. Thus, the rate of access to drinking
354 management of water resources so as to assure coverage water in all urban and semi-urban areas progressed
of the country’s needs, of completing studies and from 58.7 per cent to 70.2 per cent between 2001 and
development work, and of conserving and protecting 2005 and in rural areas at from 46.4 per cent to 64.3 per
all surface and underground water, except for agricultural cent. Taking into account the different levels of access
water schemes. Responsibility for sanitation, on the stated above, the national coverage rate for drinking
other hand, is shared amongst the DNH, the Ministry water rose overall from 49.9 per cent in 2001 to 66.1 per
of the Environment and the Ministry of Health. The cent in 2005.
DNH has the task of drawing up national policy in the
hydraulics field and of assuring co-ordination and The only data available regarding access to
technical control through its regional and sub-regional, sanitation services are those gathered by the 2001
and other dependent services. These latter contribute demographic and health survey, EDS III. This survey
to implementation of national policy and to national- showed that 62 per cent of households use very meagre
and regional-level planning for the development of the sanitary installations: 10 per cent use improved latrines
public drinking-water service in co-operation with the and 23 per cent do not have toilets at all. The difference
local authorities, who serve as promoters for the service. in rates of access is very marked between urban (30 per
cent) and rural (2 per cent) areas. As regards collective
In rural and semi-urban areas, the DNH is the liquid sewerage systems, the only areas with access to
principal protagonist through its regional and sub-regional these are the centres of Bamako and Koulouba, and
branches, the regional water and energy departments the industrial zone and a small part of the city of
(DRHE) and the sub-regional water and energy service Ségou. Mini-networks of small-diameter sewers have
(SSRHE), even if all of them are not operational. An also been developed.
institutional framework for the public drinking-water
service in rural and semi-urban areas has been tested and As for financing, individual sanitation remains the
set up after much consultation with representatives of all favoured option. Most financing, therefore, is provided
the different stakeholders in the sector. by families. The state does, however, provide financing

Mali
for mini-sewerage systems through the Office Malien This first phase provided amongst other things for
de l’Habitat. About 139 million CFA francs were the creation of 1 300 modern water points, the
invested in this way in the mini-sewerage systems of rehabilitation of 800 wells and the construction of 25
Bankoni and Baco Djicoroni. To this can be added simplified water supply systems in the Kayes,
investment for the construction of mini-sewerage Koulikoro, Sikasso and Ségou regions. Out of a total
systems in Djenné and Timbuktu. For the mini- $138 million drawn on for the first phase of the
sewerage systems, micro-financing institutions, programme, $25.2 million were allocated to drinking
sanitation co-operatives and economic interest water and sanitation in rural areas. In 2006, the
groupings have been included in the financing, supervisory council of the Agence Française de
management and cost-recovery schemes. The major Développement approved a EUR 6.1 million subsidy
problem is the very low cost-recovery level, which for Mali to finance a drinking-water-supply and
stands only at around 20 per cent. sanitation project for semi-urban population centres
in the south of the country, where more than 5 000
According to an estimate by the French engineering people live. The project should enable standpost users
firm Hydroconseil in 2005, the investment required to obtain 15 litres of water per person per day and those
to reach the Millennium Development Goals is about with individual supply lines 40 litres per day.
$47 million per year. At operational level, however,
Mali’s great water resource potential is increasingly Political Context and Human
diminishing under the effect of a deterioration in the Resources Development
country’s physical environment.
The political situation, though stable, is marked by
Deficiencies also need to be dealt with in terms of the excitement of the preparations for the 2007 355
adaptation of the institutional and legal framework. presidential election. In 2006, the political parties had
They concern: i) overlapping responsibilities amongst already declared their intention to present candidates
departments belonging to different ministries and for the country’s supreme office. This pre-election
amongst services within a single ministry; ii) insufficient sensitivity was behind the government’s sharp reaction
concertation amongst the structures responsible for to Mali’s being ranked 175 out of 177 countries in the
planning water supply and country planning, again United Nations Development Programme’s Human
due largely to overlapping responsibilities; and iii) Development Index. In normal circumstances, this
failure to prioritise the different actions carried out. would have been a non event.
Mali has made great investment efforts in recent Under decentralisation plans, the government has
years but infrastructure is still inadequate, particularly opted for administrative reform through the
with regard to small supply networks for towns of more establishment of local and regional authorities to serve
than 2 000 inhabitants. Until now, donors have carried as decentralised bodies. The aim is to render them
out operations sporadically without real co-ordination responsible through elected bodies for project
amongst them. More than 20 bilateral and unilateral conception and management and to make them
technical and financial partners are involved in financing promoters for regional and local development.
in the sector. Implementation of the CSLP II will serve as an
opportunity to focus on the difficulties that are
A major national rural infrastructure programme, hampering the decentralisation process.
the Pnir, part of which is devoted to drinking water
and sanitation, is currently being implemented. The As part of its efforts, the government adopted in
Pnir is to cover the 2001-10 period. The first phase, April 2005 an action plan to improve and modernise
for 2001-05, was financed by the International the management of public finances, called
Development Association and the Malian government. PAGAMGFP.

Mali
Great progress has been made in providing basic internships in the public services. The primary sector
education. Between 2002 and 2005, the gross continues to be the biggest provider of jobs, however,
enrolment rate for boys and girls rose 9.66 points, accounting for 83.4 per cent of the employed working
from 64.4 per cent to 74 per cent and that of girls alone population, while the second and tertiary sectors employ
9.7 points, from 53.7 per cent to 63.4 per cent. Boys’ 4.1 per cent and 12.5 per cent of workers respectively.
literacy level remained much higher than that of the The employment situation in Mali, particularly that
girls as a result of the weight of social and cultural of the young, remains a major government concern.
factors. The teacher-pupil ratio was constant between Strong demographic growth – about 2.2 per cent per
2002 and 2004 at 57 pupils per teacher. In 2005, it year – is accelerating the flow of young people into the
diminished by 3 points to 54 pupils per teacher. This labour market, while growing urbanisation, fed by
positive progression was the result of major investments rural depopulation and the return of emigrants is
in education infrastructure and significant recruitment generating a high demand for jobs.
of contract teachers.
At the social-development level, major efforts have
The fulfilment of CSLP objectives in the domains been made to set up facilities, equipment and legislative
of health and population has been satisfactory. There and regulatory provisions in favour of the handicapped.
was a major extension of DTCP3 vaccination coverage Support is being given to the elderly so they can access
of children under 1 year old, which rose from 75 per basic social services such as health care and social welfare
cent in 2002 to 91 per cent in 2005, and the proportion through the implementation of a national plan. Major
of the population living within 5 kilometres from a initiatives have been taken to help the needy, notably
working health centre rose from 44 per cent to 50 per in the form of income-generating activities, medical care
356 cent during the same period. The main constraints and school enrolment of children in difficult
encountered in the implementation of the Prodess II circumstances.
sanitary and social development programme are,
amongst others, delay in application of the decree on The goals set by CSLP II in the health field are those
the transfer of jurisdiction and resources from the state set out in the 10-year plan for sanitary and social
to local authorities, shortage of qualified personnel development (PDDSS) and the current second 5-year
and the absence of a formal operational framework for programme for sanitary and social development (Prodess
the maintenance of equipment and infrastructures. II). Amongst these can be mentioned: i) an improved
geographical access to essential health services and
To improve access to housing, the government has availability of qualified human resources; ii) constant
instituted an urban planning and housing policy, which availability of medicine, vaccines and quality
has resulted in the drafting of an urban planning master consumables at low prices throughout the country; iii)
plan (SDU) and a national housing programme (PNL), reduction for the poor of the cost of medical care in
as well as the establishment of three institutions of particular, vaccination, prenatal care and family
reference: i) the Banque de l’habitat du Mali (BHM), planning, and free treatment of children’s diseases; iv)
specialised in financing for housing; ii) the Office reform of hospital and research facilities; and v)
malien de l’habitat (OMH), another housing finance reinforcement of the institutional capacities of the
structure in charge of supporting BHM in its policy Ministry of Health and health-care facilities in general.
of reduction of the cost of purchasing housing; and iii)
the Fonds de garantie hypothécaire du Mali, in charge The strategies decided for implementation of the
of providing mortgage guarantees and of refinancing PDDSS are: i) geographical access to health services;
banks and financial institutions in the housing domain. ii) better availability and management of human
resources; iii) better health-service use, performance and
As part of the government’s effort to promote youth quality; and iv) protection of household income and
employment, 2 000 volunteers have been given availability of essential medicines.

Mali
The social development programme adopted by spread of HIV/AIDS, Mali has undertaken numerous
the government in 2005 has as its principal aim to institutional reforms with a view to strengthening the
contribute to public well-being by reducing sources of measures to fight the pandemic. These efforts have
social distress and instability with a view to achieving resulted in: i) the institution of an executive secretariat
sustainable human development. responsible for implementing, monitoring and
evaluating the national policy; ii) the adoption of a policy
Fulfilment of the objectives of CSLP II in this declaration; iii) the establishment of a high national
sector should result in: i) greater solidarity towards the council for the fight against AIDS (HCNLS); iv) the
neediest and most underprivileged sectors of society; creation of sectoral and regional committees to combat
ii) improved social-protection coverage for the whole AIDS; v) modification of the composition of the
population; iii) better access for the neediest to basic HCNLS and its attachment to the country’s presidency;
social services and micro-financing; iv) social vi) adoption of the national strategy framework for
mobilisation; and v) promotion of community health. the fight against HIV/AIDS; vii) a commitment to
provide anti-retroviral (ARV) drugs to all AIDS victims
In Mali, the prevalence rate of HIV/AIDS remains free of charge; and viii) the promulgation of an
low: according to the health and demographic survey HIV/AIDS law text on 26 July 2006.
EDSM III, it was 1.7 per cent in 2001. Faced with the
357

.
Mauritius
Port-Louis
key figures
Mauritius
M AURITIUS HAS MADE CONSIDERABLE progress in to accelerate to 5 and 5.4 per cent in 2007 and 2008,
transforming its economy from a low-income country respectively, as efforts to diversify the economy begin
to a middle-income country based primarily on the to bear fruit.
production and exports of sugar and textiles. This
progress was made possible by a combination of sound The country’s economic
Economic and financial
macroeconomic and structural policies, steady and social progress is now under
policy reforms in the 2006/07
investments in economic and social infrastructure, and threat from three external trade
budget will boost economic
preferential access to the European Union (EU) market shocks. The first of these shocks
growth but increased exports
under the sugar protocol and to world markets under was a consequence of the end
are required to reduce high
the Multifibre Arrangement (MFA). This has enabled of the MFA on 1 January 2005.
and persistent current
Mauritius to make important progress towards achieving The second was the decision
account deficits.
several of the Millennium Development Goals (MDGs). by the EU to cut its guaranteed
In 2006, Gross Domestic Product (GDP) growth is sugar import price and hence reduce the price of sugar
estimated to have been 3.9 per cent, up from 1.2 per imported from Mauritius by 36 per cent over the four-
cent in 2005 due to strong growth in tourism and year period 2006–09. The third shock was the recent
some recovery in the textile sector. Growth is expected rise in world energy prices. These developments have
361

Source: Central Statistical Office data; estimates (e) and projections (p) based on authors’ calculations.
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Mauritius
led to a period of low growth, high and persistent fiscal of 5.2 per cent in 2005, the construction industry
and current-account deficits, rising public debt and recovered in 2006, growing by 5 per cent thanks to the
high unemployment. construction of new hotels and the implementation of
projects under the Integrated Resort Schemes (IRS).
To remedy this situation, the government has Growth in the tourism sector slowed down in 2006
included a number of ambitious reform measures in compared with its formidable performance in 2005.
its 2007 budget, which was released in June 2006. The Growth in 2006 would have been even stronger had
proposed measures are intended to consolidate fiscal it not been for the outbreak of chikungunya fever1,
performance and improve public-sector efficiency, trade which reduced the number of tourist arrivals from
competitiveness and the investment climate, and to France and Réunion. The financial-services sector also
democratise the economy through an empowerment did well in 2006. The economy is forecast to grow by
programme. Most of the measures have already been about 5 per cent in 2007. Exclusive of sugar, the growth
converted into law through the 2006 Finance Act as rate is estimated at 5.3 per cent. Sugar production is
well as other legislation. estimated at about 550 000 tonnes. The tourism sector
is forecast to grow by 7.3 per cent, with tourist arrivals
estimated at 850 000.
Recent Economic Developments
The agricultural sector currently accounts for 5.4 per
In 2006, the Mauritian economy exhibited real cent of nominal GDP and is dominated by sugar
GDP growth of 3.9 per cent, considerably better than production, with the value added by the sugar sector
the 1.2 per cent registered in 2005. With the exclusion accounting for almost 52 per cent of the total value
362 of sugar, the growth rate was estimated at 5.1 per cent. added in the agricultural sector. Sugar production has
The sugar industry declined by 3.8 per cent, with sugar not fared well in recent years, falling by 19.2 per cent
production at around 500 000 tonnes, down from in 2002. After a slight recovery in 2003 and 2004,
519 816 tonnes in 2005. The main contributors to sugar production is estimated to have decreased sharply
growth were the industry groups involved in transport, from 572 316 tonnes in 2004 to 519 816 tonnes in
storage and communications, financial intermediation, 2005, or the equivalent of 9.2 per cent in 2005. This
wholesale and retail trade, and real estate, renting and dismal performance has been blamed on the adverse
business services. In 2006, the export processing zone climatic conditions that prevailed in March, April and
(EPZ) sector witnessed positive growth led primarily May 2005, the excessive rainfall in September, and the
by recovery in the textile sub-sector. After a contraction dry weather during the last months of the year. The total
Source: Authors’ estimates based on Central Statistical Office data.

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1. Chikungunya is a rare form of viral fever spread by mosquitoes

Mauritius
area harvested for sugarcane declined from 69 698 sugar industry into a cane cluster that will provide
hectares in 2004 to 68 351 hectares in 2005, whereas different types of sugar and use the by-products, such
the average yield of sugarcane per hectare decreased from as bagasse for electricity generation or molasses for the
75.76 tonnes in 2004 to 72.92 tonnes in 2005. The production of ethanol and other value-added spirits.
rate of sugar extraction fell from 10.85 per cent in Small sugar farmers are to receive incentives and
2004 to 10.44 per cent in 2005. assistance in forming larger units in order to improve
their productivity and reduce their production costs.
Sugar exports have also declined in recent years. In In addition, the Mauritius Sugar Authority has
2005/06, sugar exports stood at 521 210 tonnes, compared earmarked MUR 500 million (nearly $15 million) to
with 564 020 tonnes in 2004/05. Of total sugar exports, be used for stone and rock clearance, irrigation,
96 per cent, or 502 860 tonnes, were directed to the EU improved agricultural practices and to provide better
under the Sugar Protocol. In spite of the lower export sugarcane varieties. MUR 276 million ($8.3 million)
volume, the contribution of sugar exports to total domestic of the MUR 500 million ($15 million) have been
exports increased from 22.1 per cent in 2004 to 25 per committed to the purchase of equipment for the Sugar
cent in 2005. To reverse these unfavourable trends, the Planters Mechanical Pool Corporation.
government has announced restructuring plans for the
sugar sector in the 2006/07 budget. Another part of the government’s plan for
diversification of the sector is to build a “seafood hub”
Since 2006, the sugar industry has been hit by a project. The purpose of the project is to develop
36 per cent price reduction on all the sugar to be Mauritius into a regional centre for the storage,
exported to the EU. The price reduction is to be phased processing and distribution of seafood and to offer
in during the four-year period 2006-09. As a result, the repair and servicing facilities for fishing vessels. The 363
sector is undergoing contraction and restructuring, government believes that the project will be one of the
which is likely to lead to diversification in the medium- country’s most promising new growth sectors. Its
to-long term. To help the sugar sector, the government foreign-exchange earnings are expected to double to
has instituted a restructuring plan for the next ten MUR 10 billion ($299.1 million) in the next few years.
years, which will cost MUR (Mauritian In addition, the project is expected to create about
rupees) 24.5 billion, or $732.8 million2. The 5 000 new jobs. To realise this objective, new fish-
government plan seeks to encourage the diversification processing plants are required. Foreign direct investment
of sugar production into higher-value-added sugar (FDI) is already flowing into this project as a long-
(refined sugar). The plan will also use sugar by-products established Anglo-Mauritian enterprise, Ireland Blyth
for the production of electricity and ethanol. In addition, Limited, has announced plans to build a new
the government seeks to reduce costs by instituting a MUR 300 million ($8.97 million) fish-meal factory in
programme to consolidate plantations into larger, more the country to replace its existing plant.
efficient units and to support investment in irrigation.
The government has presented a Multi-Annual The manufacturing sector consists of sugar milling,
Adaptation Strategy - Action Plan 2006-2015 to the EPZ and other kinds of manufacturing. The
EU in an effort to seek increased financial support for manufacturing sector contracted in real terms by 5.5 per
the restructuring of the sugar industry. The plan cent in 2005, compared with a growth rate of 0.3 per
identifies several action plans to reduce costs, increase cent in 2004. In 2005, the sugar-milling sector accounted
revenue, maximise the use of by-products and alleviate for 19.7 per cent of total value added in the economy.
debt burdens. The objective of the Multi-Annual The same year, the EPZ sub-sector recorded a negative
Adaptation Strategy - Action Plan is to transform the growth of 12.3 per cent following a decline of 6.8 per
2. Mauritian rupees were converted to $ using the exchange rate of MUR 33.432/$ prevailing on 1 January 2007.

Mauritius
cent in 2004. This was due to the dismantling of the The tourism sector performed relatively well in
MFA and the ending of the textile trade quotas on 1 2006, with an estimated real growth of 3.6 per cent,
January 2005, as well as to fierce competition with low- compared with a 5.6 per cent growth rate in 2005.
cost-textile producing countries such as China, India Excluding France and Réunion, the sector registered
and Bangladesh. The total output of EPZ contracted strong growth of 17 per cent. Tourist arrivals from
by 5.9 per cent in 2005. However, the EPZ sector was France and Réunion were down sharply as a reaction
estimated to have registered a 3 per cent growth in 2006 to negative press information on the outbreak of the
after four years of decline. The sugar-milling sub-sector chikungunya fever, which hit the islands of the Indian
declined by 9.2 per cent in 2005, compared with the Ocean, including Mauritius. Tourists arriving from
6.5 per cent growth rate of 2004. The non-sugar-milling South Africa increased by 21.1 per cent, while those
and non-EPZ sub-sectors recorded zero growth in 2005 arriving from the United Kingdom (UK) increased by
as opposed to the 6 per cent growth rate of 2004. The 7.3 per cent. Tourist arrivals fell by 0.6 per cent, from
main EPZ markets in 2005 were the United Kingdom, 70 793 in November 2005 to 70 394 in November
France and United States while the main countries of 2006, while gross tourism receipts increased by 35.5 per
origin for EPZ imports were India, China and France. cent, from MUR 2.472 billion ($73.94 million) in
Employment in the EPZ sector declined further by November 2005 to MUR 3.349 billion
1 091 or 1.6 per cent, from 68 022 in December 2004 ($100.17 million) in November 2006. In cumulative
to 66 931 in December 2005. terms, from January to November 2006, tourist arrivals
reached 691 967, representing an increase of 3.2 per
The sharp output contraction in the manufacturing cent from the 670 544 arrivals registered in the
sector, especially in the EPZ sub-sector, was also due corresponding period of the previous year. Tourism
364 to the dismantling of the MFA. This has eroded the receipts for January to November 2006 increased by
country’s preferential access to EU and United States 24.2 per cent to reach MUR 28.007 billion
(US) markets. Many textile enterprises have closed ($837.73 million), compared with the
down or have had to adapt to the loss of preferential MUR 22.550 billion ($674.50 million) registered for
treatment. This has led to labour downsizing and factory the corresponding period in 2005.
consolidation. To offset these developments, the
government has introduced measures to improve the The government is projecting gross tourism receipts
country’s competitiveness and intensify its diversification of MUR 31 billion ($927.26 million) in 2007. This
efforts. A number of measures in the 2006/07 budget will represent a 17 per cent increase from 2006, which
were aimed at overhauling the framework of incentives will be due partly to the rapid depreciation of the
as well as reducing distortions and biases. From 2006 Mauritius rupee. January, February and December
to 2009, tariffs will be liberalised and Mauritius will 2006 were good months for tourist arrivals and tourist
be turned into a duty-free country. The incentive receipts collected during this period contributed
regimes for the EPZ and non-EPZ enterprises have significantly to the gross tourist receipts for the year.
been unified and all corporate taxes have been set at a
neutral 15 per cent. These incentives will then be The government’s main objective in the tourism
phased out over the next three years. A second phase sector is to increase tourist arrivals to 2 million by
of the programme will address the high costs of services. 2015. To achieve this objective, the government has
To restore global competitiveness, existing sectors, such implemented a guarded and selected liberalisation
as sugar, textiles, or clothing, are being encouraged to policy for international airlines and is promoting
modernise and restructure, with government support investment in new hotels and other facilities, which will
when necessary. The government hopes to diversify generate employment. Virgin Atlantic Airlines has
into new activities such as information and announced that it will start operating a twice-weekly
communications technology (ICT), financial services, service from London in November 2007. Other airlines
specialty tourism and land-based ocean activities. are also expected to obtain rights to make flights to

Mauritius
Mauritius. Ten new hotels are to be constructed within efforts are made to improve the attractiveness of the
the next two years. sector, such as setting up bilateral tax agreements with
emerging economies and ensuring that the necessary
The government intends to make the diversification supporting human-resource developments are in place.
of source markets an important element in its strategy
to develop the tourism sector by reducing its dependence The ICT sector has been growing fast and has
on the French market, which accounted for 29 per considerable potential for creating jobs. The ICT sector
cent of the number of tourist arrivals in 2005. In focuses on business-process outsourcing, software
addition, the government has already begun development and call centres, and it is expected to
implementing the IRS, which involves the construction boom. This sector was estimated to have registered a
and sale of luxury villas with attached amenities. This growth rate of 7.1 per cent in 2006.
project looks very promising, as inferred from the
number and scale of approved projects and those Since 2001, Mauritius has invested heavily in state-
currently awaiting approval. In the medium term, the of-the art telecommunications, and has focused on
sector will also include shopping and conference offshore e-commerce development. This is part of the
facilities. Funding for the Mauritius Tourism Promotion government’s effort to turn the country into an
Authority was considerably increased in the 2006/07 information-technology free-trade zone that will provide
budget. To date, the industry has depended largely on digital parks across the island. The digital parks are
up-market tourism for its rapid growth. This policy has designed to offer state-of-the art technological facilities
been criticised, as it is believed to deprive the larger that meet the needs of information-technology (IT)
population of active participation in the industry. To businesses. IT enterprises that choose to be located in
remedy this situation, it has been suggested that the Mauritius will be able to take advantage of a new 365
government should democratise the sector in order to submarine-cable optic-fibre connection linking Portugal
attract different types of tourists. In addition, the to Malaysia via the island. To nurture the development
government has been called upon to encourage an of the IT sector, the government has established an
integrated approach to the development of the sector, Infocom Development Authority, which is responsible
which would include the creation of tourist villages. for the promotion of investments in information
This will not only assist in maximising the earnings technology and which also regulates the sector. In
potential of the industry but will also have a job- addition, the government has been providing a series
creating effect on low-skilled workers. of fiscal incentives to both foreign and domestic
businesses. Furthermore, IT enterprises located in
In addition to tourism, the government is actively Mauritius will also be provided with electricity at
promoting other industries such as the financial-services preferential rates, the opportunity to buy property and
sector and the ICT sector. The financial-services sector, land, and permanent resident status. The Indian
including real estate and business services, accounted government has been assisting in this e-development
for 15.5 per cent of total value added in 2005. The initiative and has provided a credit line of $100 million
financial sector grew by 7 per cent in 2005, up from to finance the development of the Mauritius CyberCity.
4.3 per cent in 2004 with the insurance sub-sector Construction of the CyberCity began in 2004 and is
growing by 5 per cent in 2005, the same growth rate part of the greater Ebene CyberCity project, which is
experienced in 2004. This was due to a 9.4 per cent intended to attract foreign IT enterprises to Mauritius.
growth rate in offshore banks, 2.3 per cent in The Cyber Tower, a central feature of the Ebene
commercial banks and 10.2 per cent in other financial CyberCity, was inaugurated in April 2005, and the new
institutions. In 2006, the financial-services sector is offices of the offshore management enterprise
estimated to have recorded a growth rate of 7.4 per cent. International Financial Services (IFS) in the Ebene
Prospects for the growth of the offshore financial sector CyberCity were inaugurated in April 2006. The
are considerable and could be captured if significant CyberCity has attracted about 25 operators so far.

Mauritius

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 6.3 6.3 30.4 5.0 4.0
Private 19.5 15.3 5.0 8.0 9.0
Consumption 75.1 84.4 2.0 4.3 3.7

Public 13.7 14.8 6.8 -0.7 1.8
Private 61.3 69.6 1.2 5.2 4.0

Exports 65.7 59.9 5.4 5.5 3.1
Imports -66.5 -65.9 5.4 5.1 1.4
Source: Central Statistical Office data; estimates (e) and projections (p) based on authors' calculations.
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Located at a 15-minute drive from Port Louis, it has The share of aggregate consumption was 84.4 per
free-zone status and offers tax advantages to its occupants. cent in 2005, compared with 75.1 per cent in 1998.
The entire CyberCity is wired with optic-fibre and Aggregate consumption was estimated to have grown
copper cables to provide high speed international further in 2006 by 4.9 per cent in real terms and is
366 bandwidth on tap. Nevertheless, in spite of the huge projected to continue to grow by an average of 4.3 per
investments in the sector, the IFS promotion agency has cent per year in 2007-08. The growth in aggregate
not done enough to position the island at the forefront consumption for 2006 implies that there has been an
of the developing e-commerce sector internationally. improvement in the living standards of Mauritians
despite the severe difficulties that key sectors of the
To facilitate further growth, the government is economy have experienced in recent years. Improvement
formulating a National ICT Strategic Plan to lay out in the standard of living has been made possible by the
its strategy to transform Mauritius into a “Cyber” satisfactory level of investment, which was 21.6 per cent
Island. The ICT sector is likely to provide a boost to of GDP in 2005 and is estimated to have increased by
productivity in the economy generally. ICT can also 12.5 per cent in 2006. More importantly, even though
help the government with its plans to set up a biomedical the share of private investment was 15.3 per cent of
hub in Mauritius. Two Indian enterprises are already GDP in 2005, down from 19.5 per cent in 1998, it
assisting the government in the project to develop still represents more than 70 per cent of total gross
medical tourism. Upon completion, the project will capital formation.
provide high-tech treatment for foreigners and
Mauritians. The government is keen to tap into the
growing international demand for medical services and Macroeconomic Policies
to provide integrated tourist packages covering health
care, welfare and relaxation. Promoting Mauritius as Fiscal Policy
an international medical centre will go beyond health
care to include the manufacturing and assembly of The economy is estimated to have registered an
medical equipment, pharmaceutical research, medical overall fiscal deficit of 5 per cent of GDP in 2005/06,
outsourcing and telemedicine, and a number of tax after having recorded fiscal deficits of 5.4 per cent of
exemptions for medical equipment were announced in GDP and 6.3 per cent of GDP in 2004/05 and
the 2006/07 budget. 2003/04, respectively.

Mauritius

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 17.0 17.3 17.5 18.5 18.2 18.7 18.9
Grants 0.2 0.2 0.4 0.2 0.3 0.2 0.1
Interest 3.7 4.3 4.0 4.0 3.8 4.2 4.4
Primary balance 2.0 -2.1 -1.4 -1.0 -1.6 -0.5 -0.1

Overall balance -1.7 -6.3 -5.4 -5.0 -5.3 -4.7 -4.4
Source: Ministry of Finance data; estimates (e) and projections (p) based on authors’ calculations.
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Total revenue and grants decreased slightly from 24.9 per cent of GDP in 2005/06. Current expenditure
20.3 per cent of GDP in 2004/05 to 19.9 per cent of remained unchanged at 21 per cent in 2005/06, while
GDP in 2005/06. This was due to a decline in grants. the major components – interest and wages and salaries –
Tax revenue, on the other hand, increased from 17.5 per also remained unchanged. The share of wages and
cent of GDP in 2004/05 to 18.5 per cent of GDP. The salaries decreased slightly from 6.6 per cent of GDP
increase in tax revenue was essentially due to increases in 2004/05 to 6.4 per cent of GDP in 2005/06. On 367
in corporate taxes and value-added taxes, even though the other hand, the share of capital expenditure in
the rise in tax revenue was partly offset by declines in GDP declined from 4.3 per cent in 2004/05 to 3.5 per
customs duty and excise duties. Taxes on income cent of GDP.
(including profits and capital gains), taxes on goods and
services, and taxes on property increased by 28.1 per As a result of higher government expenditures in
cent, 3 per cent and 15.5 per cent, respectively. The 2005/06 as compared with total revenue, the overall
increase in revenue from corporate taxes accounted for central government balance registered a deficit of 5 per
86.9 per cent of the increase in revenue from taxes on cent of GDP. This is a decline from the 5.4 per cent
income, profits, and capital gains. Net revenue from of GDP figure that was recorded in 2004/05. The
VAT increased 9.4 per cent in 2005/06. One way the budget deficit was financed from domestic sources,
government may be able to increase revenue is to including both the bank and non-bank sectors.
institute a gradual liberalisation of the price of sugar Financing from the central bank resulting in an
on the local market, which is highly subsidised by the expansion of the money supply was also positive. In
sugar industry3. This will reduce revenue losses to the terms of instruments, only medium and long-term
government. Non-tax revenue composed mainly of securities were used to finance the budget deficit
property income and fees, charges, and sales also rose
by 25.9 per cent in 2005/06, reflecting mainly earnings Mauritius’s public debt was estimated to have
on overseas investments by the Bank of Mauritius. declined from 58.2 per cent of GDP in 2005 to 57.9 per
cent of GDP in 2006, reflecting a reduction in the
Total expenditure and lending (minus repayments) fiscal deficit in 2006. This means that the scale of
declined from 25.6 per cent of GDP in 2004/05 to government borrowing was much less than the previous
3. Since 1995, the Mauritius Sugar Syndicate has been importing and selling sugar on the local market at prices determined by the
Syndicate, which are lower than the import price

Mauritius
year. Internal public debt accounted for 92.4 per cent a single-digit rate of 8.5 per cent in 2004/05. Following
of total public debt in 2006. The proportion of short- its Article IV consultation with the International
term debt in total internal public debt has decreased Monetary Fund (IMF), the BoM has indicated a
steadily from 85.8 per cent in 2003 to 52.9 per cent willingness to manage liquidity more actively.
in 2006.
A number of banking developments occurred in
Monetary Policy 2005/06 as the BoM continued to implement the
Banking Act of 2004, which made it easier for banking
During fiscal year 2005/06, the Bank of Mauritius business to be carried out under a single banking
(BoM) tightened its monetary policy stance by raising license4. The BoM issued a “Guideline on Segmental
its interest rate on two occasions by an initial increase Reporting under a Single Banking License Regime” to
of 50 basis points from 10 per cent to 10.5 per cent banks in June 2005, which provided, amongst other
in August 2005 and by a further 100 basis points to things, for the reporting of banking activities under
11.50 per cent on 7 December 2005. The increases Segment A and Segment B and the treatment of specific
in the interest rate were intended to contain deposit liabilities for the cash-reserve ratio requirement.
inflationary pressures in the economy driven largely Other key banking developments involve the
by a sustained rise in energy prices, a large build-up Mascareignes International Bank Limited, which
of excess liquidity and government borrowing arising merged with the Banque des Mascareignes Limitée.
from financing the persistent fiscal deficits. The annual RMB (Mauritius) Limited ceased all banking operations.
rate of inflation was estimated at 8.9 per cent in 2006, HSBC Bank (Mauritius) Limited was granted a banking
a sharp increase from the rate of 5 per cent recorded license and started operations in August 2006. Barclays
368 in 2005. The rise in the rate of inflation was due Bank was also allowed to issue bonds to the public.
largely to the removal of subsidies on flour and rice
that was announced in the 2006/07 budget, the External Position
depreciation of the Mauritian rupee, rising freight
costs and soaring energy prices during the year. The current account of the balance of payments
Inflation is projected to decline to about 5 per cent deteriorated significantly to record a deficit of 7.4 per
in 2007, since some of the contributing factors were cent of GDP in 2006, up from 5.2 per cent of GDP
just one-time occurrences. The interest-rate increase in 2005. The deterioration was largely due to a
was also intended to preserve the attractiveness of worsening trade balance, which was to some extent
key rupee-denominated financial instruments, because offset by the combined surpluses in services and current
the value of the rupee deteriorated in relation to the transfers. The worsening trade balance was caused by
major international currencies. Moreover, the interest- high imports driven by a higher import bill for oil
rate increase helped to contain emerging-demand products and a sharp increase in the imports of
pressures in the foreign-exchange markets. The banks telecommunications equipment. Both items were
adjusted their rupee deposits, advances and lending responsible for more than 50 per cent of the increase
rates in line with changes in the discount rate, but this in total imports.
did not seem to have much of an effect on short-term
market interest rates. Thus, the money supply returned In 2007, Air Mauritius plans to purchase two new
to a double-digit growth rate of 11.2 per cent, from aircraft. This will lead to an increase in the import bill
4. The Banking Act 2004 removed the distinction between Category 1 banks (commercial banks) and Category 2 banks (offshore banks)
and provided for banking business to be conducted under a single license regime. All banks are now free to transact in all currencies,
including the Mauritian rupee. Segment B relates to the banking business that gives rise to “foreign-source income”. All other banking
business is classified under Segment A. Banks reported their statement of assets and liabilities based on segmental reporting for July
2005 together with a comparative statement for June 2005.

Mauritius
and will have an adverse impact on the trade balance, Act (AGOA), which ensures the country‘s preferential
which is projected to reach 16.2 per cent of GDP. In access to the US market for certain products. Mauritius
contrast, the surplus on the services account of the is therefore actively campaigning for further extension
balance of payments is projected to increase at a of AGOA. Mauritius also signed a Trade and Investment
sustained pace of 8.4 per cent of GDP, due mainly to Framework Agreement with the United States in 2006.
higher surpluses on the travel account.
In 2005/06, net inflows of FDI amounted to
The worsening trade deficit in 2006, which was MUR 1.564 billion ($46.78 million), compared with
partly blamed on high imports, was also due to weak outflows of MUR 61 million ($1.82 million) in 2004/05.
growth in export earnings. Export revenue could therefore As a result, gross FDI in Mauritius reached
improve significantly if Mauritius could take advantage MUR 4.683 billion ($140.08 million) in 2005/06.
of the many opportunities it could derive from its This was due largely to investments in the tourism
membership in its regional bodies, such as the Southern sector, which also reflected the significant developments
Africa Development Community (SADC) and the in the IRS and the banking sector. Disinvestments from
Common Market for Eastern and Southern Africa Mauritius were quite considerable, amounting to
(COMESA). COMESA has already established a Free MUR 3.119 billion ($93.29 million) in 2005/06, which
Trade Area and is working towards the creation of a was partly due to non-residents’ disposal of shares in the
Customs Union, which Mauritius is actively supporting. banking and commercial sectors. Direct investment
abroad by residents recorded net outflows of
Mauritius is negotiating the establishment of an MUR 986 million ($29.49 million) in 2005/06 as
Economic Partnership Agreement (EPA) with the EU against net outflows of MUR 826 million ($24.71) in
as a member of the Eastern and Southern Africa (ESA) the previous fiscal year. Gross FDI by Mauritian residents 369
group. Mauritius is also pursuing a policy of tariff amounted to MUR 1.783 billion ($53.33 million) in
liberalisation in order to foster the “duty-free island” 2005/06 and was addressed mainly to the tourism sector
concept. Even though Mauritius does not need to in Maldives and Seychelles, the manufacturing sector
harmonise external tariffs within a future COMESA in Madagascar and the agricultural sector in
Common External Tariff (CET), Mauritius could still Mozambique. As a result, direct investment registered
become a member of both the SADC and COMESA net inflows of MUR 578 million ($17.29 million) in
Free Trade Areas, giving support to the COMESA 2005/06, compared with net outflows of
CET, while keeping a network of free-trade agreements MUR 887 million ($26.53 million) in 2004/05.
with countries bordering the Indian Ocean (e.g. India
and Malaysia) as well as with the EU. Mauritius can The net international reserves of the Bank of
also increase its export earnings through continued Mauritius comprise the net foreign assets of the banking
benefit from the US African Growth and Opportunity system, the foreign assets of the government and the

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -5.6 -5.3 -9.1 -12.7 -16.3 -16.2 -19.8

Services 4.8 6.6 6.7 6.7 7.9 8.4 9.0
Factor income -0.6 -0.5 -0.2 -0.1 -0.1 -0.1 -0.1
Current account balance 0.8 1.7 -1.8 -5.2 -7.4 -6.8 -9.7
Source: Bank of Mauritius; estimates (e) and projections (p) based on authors’ calculations.
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Mauritius

370 Source: IMF.

http://dx.doi.org/10.1787/266241827673
country’s reserve position in the IMF. Net international Structural Issues

reserves increased from MUR 53.932 billion
($1.62 billion) at the end of June 2005 to In recent years, the Mauritian economy has been
MUR 61.974 billion ($1.86 billion) at the end of June affected by a number of problems including low
2006 (an increase of 14.9 per cent in nominal terms). economic growth, high unemployment, widening
The level of net international reserves of the country fiscal and external deficits, and excessive public debt.
at the end of June 2006 represented about 7.4 months These problems have been compounded by the impact
of imports based on the value of the import bill for fiscal of the “triple shock”, namely: the EU decision to cut
year 2006 excluding imports of aircraft, compared with its guaranteed sugar import price, which is expected
7.7 months of imports at the end of June 2005. The to lead to a 36 per cent decline in the price of sugar
end-of-June 2007 level of international reserves of the imported from Mauritius in the course of 2006-09;
country has been estimated as the equivalent of 6.8 the end of the MFA on 1 January 2005; and the
months of imports. recent increase in international energy prices. To tackle
these challenges, the government announced 40 bold
The country’s external public debt fell from reform measures in the 2006/07 budget. The reforms
MUR 9.2321 billion at the end of June 2005 to were designed to make the economy more open and
MUR 8.6484 billion at the end of June 2006. This flexible, as well as to provide new controls on public
was due to a decline in both foreign loans and foreign spending by overhauling the outdated tax and public-
investment in treasury bills. In spite of the decline spending system. Most of these measures have been
in total external debt, the debt-service ratio of the transformed into law by the Finance Act of 2006,
country increased from 6.5 per cent in 2005 to 8.4 per while other policies are in the process of being
cent in 2006. legislated. The measures include the following: a) a

Mauritius
Business Facilitation Act has been passed, aimed at 2009. These changes are designed to simplify the tax-
improving the business climate in Mauritius by administration system significantly and to reduce the
simplifying procedures for incorporating business, scope for tax fraud, and consequently to bring about
opening up the economy to foreign investors, reducing a higher rate of revenue collection.
bureaucratic procedures and streamlining regulations
that affect business start-ups; b) it has been made Proposed reforms of the government’s land policy
easier to obtain work and resident permits; c) the are intended to ensure that more land is made available
procedure for acquiring property for business to non-sugar producers. For some time, farmers have
development has also been simplified; d) in order to been encouraged to move into agro-industry-based
improve trade competitiveness, the government is activities such as food processing. As a result, pickles
currently implementing a phased tariff reduction with and fruit juices are now being processed in Mauritius.
the aim of eventually achieving a duty-free country Some land is also being used for flower production.
by reducing the top ad valorum tariff rate from 65 to Having strengthened its framework for managing
30 per cent and reducing average tariffs by 2 per cent; environmental risks, the government is better prepared
e) the tax and regulatory regimes for EPZ and non- to assess whether the major reforms being contemplated
EPZ enterprises have all been unified, except for might have important environmental impacts. To
labour regulations; and f ) the international private manage environmental risks, the Environment
leased circuits (IPLCs) have been reduced by 20 to Protection Act now mandates the maintenance of a list
35 per cent in order to turn the country into an ICT of activities that require short or full environmental
Free Trade Zone5. impact assessment (EIA). For the mini- or short EIA,
a preliminary report is required, which can be approved
The high unemployment rate of 9.6 per cent in by the Director of the Department of Environment after 371
2006 was partly due to the rigidity of the country’s stakeholders have been given sufficient time to present
labour market. The labour laws provide a high level of their views. To deal with the activities responsible for
worker protection and make it difficult to dismiss heavy pollution, a full EIA is required. In the case of
workers. Real wages are also very high. Furthermore, waste-water projects, the Department of Environment
the labour markets are segmented. Labour-law reforms monitors the impact of waste water on marine pollution.
are therefore being contemplated. These reforms include The problem of waste water is becoming increasingly
abolishing the National Tripartite Commission and important in the tourism sector with the development
replacing it with a National Wage Council. Wages of the IRS scheme. To deal with the problem of
would be linked to productivity, and the degree of job improper disposal of plastic bags, fines are now levied
protection would be reduced. The various labour on those found throwing plastic bags on the streets.
markets would be integrated into one regime with the
same rules and procedures for all. Access to Drinking Water and Sanitation
In the area of fiscal policy, changes in personal and Water in Mauritius is mainly available from
enterprise taxation have been announced. The underground and surface sources (mainly rainfall), and
government plans to eliminate many complex it is collected in reservoirs around the island. Water
exemptions, tax abatements and allowances, and to comes 52 per cent from boreholes and 48 per cent
reduce the number of tax brackets. These reforms are from the surface. Mauritius has an average annual
intended to lead to a flat-rate regime system with a single rainfall of 2 100 millimetres and an annual volume of
personal and enterprise tax rate of 15 per cent by July freshwater of 3 900 million m3 of which only 33 per
5. The IPLC service enables connection between two points either by fibre or satellite. Mauritius Telecom can offer IPLC on the basis of
bilateral agreement with other carriers or on a full-circuit basis from its Point of Presence in Paris. The service is used mostly by service
providers, public operators and foreign carriers.

Mauritius
cent is captured. Unfortunately, this volume of water subscribers and the rest to government institutions and
is unequally distributed due to the land topography, commercial enterprises. The demand for water from
thereby requiring the use of dams and reservoirs. In 1995 to 2003 increased cumulatively by 32 per cent.
normal climatic conditions, Mauritius has a storage Since then, water demand has been increasing by an
capacity of one year. Water consumption per capita is average annual rate of 3 per cent. The number of
about 160 litres per day and if all sectors are included, subscribers has also been growing by a steady 2.8 per
it amounts to 250 litres per day. cent. According to the CWA forecast, water
requirements during 2007-08 and 2009-10 will amount
Several institutions are involved in the production to 550 000 m3 and 565 000 m3 respectively.
and distribution of water. They include the Central
Water Authority (CWA), which, according to the CWA Table 4 shows water consumption by type of client.
Act, is responsible for the control, development and Domestic consumption accounts for the highest
conservation of water resources and also for the consumption of water (77.5 per cent). A significant
treatment and distribution of water to domestic, portion of water is used for irrigation purposes. These
industrial and institutional consumers. The legislation latter account for 60 to 70 per cent of the impounded
also entitles the CWA to carry out operations relating raw water, which is available mainly from boreholes and
to sewerage and irrigation. A second institution involved some reservoirs.
in the water sector is the Water Resources Unit (WRU),
which is located in the Ministry of Public Utilities and In Mauritius, the regularity of water supply is
is responsible for developing water policy and for determined by seasonal factors. During the normal
carrying out studies to determine water requirements. season, 87 per cent of households have access to 24-
372 It is currently working on a Water Act. The third hour water supply. The other households have a supply
institution involved in the water sector is the Waste varying from 10 to 18 hours. Water supply is rationed
Water Management Authority, which is responsible during the May-November dry season and some regions
for sewerage operations. receive a minimum of 10-hour water supply a day.
However, due to climatic changes, the dry season has
The achievements of Mauritius in providing access now lengthened to December, thereby adding extra
to drinking water and sanitation have gone well beyond pressure on the water supply.
the MDGs. More than 99.6 per cent of the population
has access to safe drinking water while 99.9 per cent The domestic water supply throughout the island
of the population has access to improved sanitation is generally safe for consumption. To ensure that this
services in both the urban and rural areas. is the case, the CWA has two fully equipped
laboratories that comply with World Health
As regards the supply of drinking water, the CWA Organisation (WHO) standards. The Ministry of
mobilised an average of 525 000 m3 of potable water Health also monitors regularly the quality of water
daily in 2003, of which 78 per cent was sold to domestic meant for consumption.
Table 4 - Water Consumption by Type of Client (percentage)

Type of client Share of water consumed
Domestic 77.5
Government 5.5
Commercial users 6.3
Hotels 4
Industry 5.2
Agriculture (treated) 1.5
Source: Central Water Authority.

http://dx.doi.org/10.1787/573052505400

Mauritius
The cost of water is very low, MUR 9.95 ($0.30) Kuwait Fund, the French development fund Caisse
per cubic metre, or less than MUR 0.01 ($0.0003 ) per Française de Développement (CFD), the Saudi Fund
litre. The average price of water for domestic purposes and the Arab Bank for the Economic Development in
is much less, MUR 5 ($0.15) per cubic metre. This rate, Africa (BADEA).
subsidised up to 75 per cent, is made possible mainly
through a cross-subsidy system. The government The water sector faces a number of challenges. The
purchases water at MUR 17 ($0.51) per cubic metre. first is how the CWA can reduce non-revenue water
Private-sector commercial users are charged MUR 16 from 47 per cent to 25 per cent. To do this, the CWA
($0.48) per cubic metre, hotels pay MUR 29 ($0.87) has developed an action plan and has developed a
per cubic metre and vegetable growers pay MUR 7 project for 2007-11 costing MUR 890 million
($0.21) per cubic metre. Borehole users are licensed and ($26.69 million) aimed at renewing old pipes and
charged MUR 0.50 ($0.015) per cubic metre. New water meters. The reduction of pilferage is being
connections to the water network for households are monitored by a fraud squad. The second challenge is
completed in a maximum of 15 days. The water tariff how to mobilise more surface water by investing in
is increased every five years and the decision to do so major projects such as dams. This is the result of the
is vested in the Ministry of Public Utilities. high water demand, which has caused Mauritius to
reach its limit in terms of underground water resources
Unaccounted, or non-revenue, water consumption exploitation. A number of ongoing ground water
(about 47 per cent) is attributed to a number of factors exploration programmes are being instituted across
and usages. Some operators such as the Fire Services the island in order to satisfy demand.
are authorised users and have access to free water
amounting to 5 to 6 per cent of available water. According to the United Nations Development 373
However, 35 per cent is attributed to pilferage and Programme (UNDP) Human Development Report,
7 per cent to leakages as a result of old pipes (more than Mauritius is already facing a situation of water stress
50 years old). There is, however, an ongoing plan to because it has a supply of 1 083 m3 per person per year
reduce the level of unaccounted water to a level of (based on actual population), which is below the norm
25 per cent of 1 700 m3 per person per year. According to the
same sources, Mauritius is expected to suffer from
For the past 20 years, the CWA has invested an water scarcity by 2020 with a projected supply of 974
average of MUR 350 million ($10.47 million) annually m3 per person per year (based on a projected population
in the water and infrastructure system in order to of 1 335 000). Although the figures can be interpreted
maintain a regular supply of water in the country. The in various ways, they provide an indication of the
main focuses have been on mobilising water resources problems that Mauritius may face in the future
from underground sources as well as surface sources, regarding water supply. Some recorded statistics, which
extending the water-supply network and increasing tend to substantiate this trend, show that there has been
storage and treatment capacity. a drop of 8 per cent in available water resources over
the last 30 years in Mauritius. The WRU is therefore
The WRU is planning to invest in new projects such developing plans to mobilise additional water resources.
as the Bagatelle Dam, which is to supply the capital city The fourth challenge faced by the CWA is that of
with water, especially during the dry season. Another capacity building and how to keep pace with new
dam, Chamarel, will supply the western coast. The technology. In order to encourage training, the CWA
total cost of this investment is estimated at $10 million. is using 1 per cent of its total investment funds for
The CWA has access to various loans to finance its capacity building.
projects. At present, a number of projects are being
financed by the African Development Bank (ADB) With respect to sanitation services, almost 99.9 per
Group, the European Investment Bank (EIB), the cent of the population has access to proper sanitation

Mauritius
in their homes in both urban and rural areas. Regarding Although Mauritius was rated as one of the least
the treatment of waste water, only 25 per cent of corrupt countries in Africa in the Transparency
households are currently connected. The treatment of International Corruption Perception Index of 2005,
waste water is carried out by the Wastewater Management there has been an increase in the incidence of corruption
Authority (WMA), which was established as a corporate in recent years. Given this perception, the government
body under the Wastewater Management Authority Act. has reiterated its commitment to fighting corruption.
Its main responsibilities are the collection, treatment To this end, legislation was enacted in September 2005
and disposal of wastewater. This organisation operates to reform the practices and management of the
under the aegis of the Ministry of Public Utilities. Independent Commission Against Corruption (ICAC).
However, action has yet to be taken to deal with the
Each household is connected to the sanitation issues raised in the audit director‘s report on government
network wherever sewerage networks exist. Those finances for 2004/05, which was published in November
connected are the only ones whose bills are annexed 2005 and severely criticised the management of
to their water bills and pay the equivalent of their water government finances. This lack of action has
bill in rupees. The government has committed to spend undermined the government’s credibility and
MUR 6 billion in the next six years to reach a sanitation commitment to fighting corruption.
connection level of 50 per cent.
In terms of regional relations, the government will
continue to participate in negotiations with the EU to
Political Context and Human set up a free-trade agreement for members of the SADC
Resources Development before the Cotonou Agreement expires in 2020. The
374 government will also continue negotiations with India
Since attaining independence in 1968, Mauritius on the Comprehensive Economic Cooperation and
has been a stable democracy with regular free elections, Partnership Agreement aimed at consolidating the
a free press, the rule of law and a positive human-rights excellent relations between the two countries. However,
record. The head of state of Mauritius is the President, Mauritius may have to accept changes in the highly
who is elected for a five-year term by the National advantageous clause in their double-taxation-avoidance
Assembly, the unicameral Mauritius Parliament. The agreement. The government will also seek to develop
National Assembly comprises 62 members elected links with China.
directly by popular vote, with between 4 and 8 further
members appointed from “best losers” election In terms of fostering democratic governance,
candidates to represent ethnic minorities. The Mauritius has made considerable progress in promoting
government is headed by the Prime Minister and a the protection of human rights since its independence.
Council of Ministers. The most recent general elections In 2005, it launched its National Human Rights
were held on 3 July 2005 in all the 20 mainland Strategy. The government of Mauritius has established
constituencies as well as the constituency covering the a number of national human rights institutions
island of Rodrigues. Observers of the international including the National Human Rights Commission,
community judged the elections free and fair. The the Office of the Ombudsperson for Children and an
Labour Party, the largest party in the Alliance Sociale, Ombudsperson. The country has ratified all major
won a substantial majority in Parliament. This majority United Nations (UN) international human-rights
helped the new government implement bold and radical instruments with the exception of the International
economic reforms, which were announced in the Convention for the Protection of the Rights of all
2006/07 budget that was presented in June 2006. Migrant Workers and Members of Their Families.
However, the reforms include the imposition of Nonetheless, the Second Optional Protocol to the
controversial tax increases and the removal of subsidies International Covenant on Civil and Political Rights,
on rice, flour and other essential commodities. the Optional protocol to the Convention on the

Mauritius
Elimination of All Forms of Discrimination against economic and political decision-making processes. The
Women and the Convention on the Rights of the Child special measure announced in the 2006/07 budget,
have not been ratified yet. which was intended to democratise the economy, will
ensure greater participation and social cohesion through
Gender mainstreaming is now receiving new the creation of an Empowerment Programme. The
impetus. In August 2005, the government of Mauritius, programme will spend MUR 5 billion ($150 million)
in collaboration with the UNDP and the International over 5 years, which is a step in the right direction. The
Labour Organisation, started a three-year programme programme will focus on supporting workers in
titled Capacity Building for Gender Equality and transition and supplying land for social housing and
Empowerment of Women. The programme is aimed small businesses. It will also provide finance and
at an environment that will ensure the development of technical support for small and medium-size enterprises.
policies, legislation, financial and economic mechanisms
in Mauritius to promote gender equality in social, Progress on the MDGs, as based on the 2003 Status
economic and political spheres as well as to empower Report (the latest available), showed that Mauritius
women. Achievements in gender have so far included had made significant progress in the social sector. With
a substantial increase in the representation of women respect to education, primary school is now compulsory
in parliament. Of the candidates nominated by each and free. Both boys and girls have the opportunity of
major group in the current parliament following the attending primary schools, and the primary-school
July 2005 general elections, 16 were women and 12 of enrolment ratio attests to this. Mauritius has met the
these candidates were elected (11 directly and 1 woman target for universal primary education. The maternal-
through the “best loser” system). This raised the mortality rate has also decreased and is comparable to
representation of women in parliament from 5.7 per that of the developed countries. This target was reached 375
cent, or 4 women, in the outgoing parliament, to in 2000. Investment in the health sector would ensure
17.1 per cent in the new legislature. that the maternal-mortality rate does not deteriorate
over time until 2015. The child-mortality target was
Although Mauritius has made important progress also on track with low rates observed in recent years.
in achieving the MDGs, the country still faces several
challenges, including dealing with pockets of poverty HIV/AIDS is not a serious problem in Mauritius.
in an economic environment beset by low job creation. However, an increase in new cases has recently been
While no national poverty line has been established, reported, and this has become a matter of concern to
it is estimated that around 12 per cent of the population the government. The government has therefore stepped
live in poverty. The figure is much higher for Rodrigues, up its awareness campaign and is providing the necessary
where about 37.5 per cent live in poverty. One way that care and support for those already affected by the
the government can make significant progress in disease. The prevalence rate of HIV/AIDS amongst
addressing poverty is to promote social participation, the adult population, aged 15 to 49, was estimated at
cohesion and create well-being for all citizens. This 0.6 per cent in 2005. Women aged 15 to 49 with
includes fostering stronger participation of women in HIV/AIDS were estimated at less than 1 000.

.
Morocco
Rabat
key figures
Morocco
M OROCCO’S ECONOMIC PERFORMANCE improved Since his coronation in 1999, King Mohammed VI
markedly in 2006 and the outlook for 2007 is has prioritised poverty reduction and job creation. To
favourable. Growth reached 7.3 per cent in 2006, well this end, the Moroccan
A reform programme aims
above the forecast 5.3 per cent a year earlier, but is authorities introduced wide-
to enhance growth and to
expected to slow down to 3.1 per cent in 2007. In ranging policy reforms in
improve human development
2006, investment grew at 5.3 per cent; unemployment 2005 and 2006 to diversify
indicators in the context
fell significantly to below 10 per cent from 11.1 per the economy and raise
of a mostly favourable political
cent in 2005, while inflation increased only modestly productivity, notably the
and economic environment.
to 3.3 per cent in 2006, in response to high oil prices. Plan Emergence. This plan
The government managed to reduce the budget deficit aims to raise growth by 1.6 per cent per annum over
to 5.6 per cent of GDP excluding privatisation receipts the next ten years, leading to the creation of an additional
(4.1 per cent otherwise) in 2006, compared with 6 per 440 000 new jobs.
cent in 2005; the deficit is expected to remain about
the same in 2007 and 2008. The public debt to GDP Morocco has signed several Free Trade Agreements,
ratio decreased from 75 per cent of GDP in 2005 to including one with the United States and one with
70 per cent of GDP in 2006. Turkey, and is currently negotiating one with Europe.
379

http://dx.doi.org/10.1787/318764308825

Morocco
However, regional co-operation with the MENA region restructuring programme has been put in place that
and Africa is still very weak. includes the replacement of cereals with less water-
demanding, fruit-bearing trees.
Although the latest official growth and unemploy-
ment figures show impressive improvements, further Exports of fruits and vegetables, however, are
reforms of the legal system, the administration and the suffering as a result of strong competition from countries
labour market are required to extend these gains. like Egypt and Turkey. According to the Office des
Changes (exchange office), the volume of citrus fruit
and tomato exports fell by 12.6 per cent and 14.5 per
Recent Economic Developments cent respectively in 2006.
Led by agriculture, economic growth jumped to Fish production decreased by 2 per cent in the
7.3 per cent in 2006, up from 4.2 and 2.1 per cent in year ending October 2006 following the decline in
2004 and 2005 respectively, the highest since 1998. pelagic fishing which accounts for 82.1 per cent of total
Stabilisation of agricultural output after this exceptional fish production in Morocco. The value of exports of
performance in 2006 is expected to entail a slowdown fish products nonetheless rose by 8.4 per cent during
in growth in 2007 to 3.1 per cent. Over the longer term, this period, with canned fish, shellfish and fresh fish
the relationship between agricultural output and exports increasing by 5.3 per cent, 1.8 per cent and
economic growth is weakening gradually, with the 1.3 per cent respectively.
secondary and tertiary sectors gaining more weight in
the country’s output. Non-agricultural output growth Despite the late start of the agricultural campaign,
380 has been quite steady at 4.9 per cent in 2006 and the primary sector outlook for 2007 is for continued
5.3 per cent in 2005, and is expected to be 5.2 per cent strong growth of 6.8 per cent, due to the policies
in 2007, with the latter aided by the distribution sector, outlined above and others such as subsidies for seed
which is forecast to grow at 5.8 per cent. purchase and storage and low interest-rate loans to
finance agricultural campaigns and investments.
The primary sector registered exceptional growth
of 30.6 per cent in 2006. Cereal production reached The secondary sector continued its positive trend in
an unprecedented 90 million quintals but is expected 2006, growing at 4.9 per cent compared with 5.3 per cent
to fall back to 65 million quintals in 2007. Livestock in 2005. Industrial production rose by 4.7 per cent. The
also recorded a strong performance, which should be metal, metalworking and electronic industries recorded
reinforced by policies to improve vaccination, sanitation, solid growth. Exports of electronic components grew by
irrigation and crop diversification. A three-year 10.4 per cent in 2006, up from 2.1 per cent in 2005.
Source: Authors’ estimates based on National Statistics Office data.

http://dx.doi.org/10.1787/801611104560

Morocco
Thanks largely to Europe’s imposition of new quotas sector was bolstered by public investment in roads,
on ten categories of Chinese products, the textile and ports and housing developments, as well as the boom
leather sector recovered in 2006 with 14 per cent growth in tourism. For the year ending October 2006, cement
rate, after the downturn experienced in 2005 as a result sales were up 8.7 per cent, compared with 4.8 per cent
of the phasing out of the Multi Fibre Arrangement during the same period the previous year. The
(MFA) in January 2005, which granted Asian textile government intends to construct 100 000 housing
exports unlimited access to Morocco’s traditional markets. units per year to resolve the problem of shantytowns
In addition, Morocco is taking advantage of its proximity that have grown around the country’s main cities.
to the EU and the United States to attract a growing Private construction companies are carrying out the
number of European and American multinational building under government contracts, with various tax
producers. Moreover, the recent decision of the European breaks, subsidies and other incentives.
Council to extend the cumulation of origin system to
Mediterranean countries could also be an advantageous The government’s tourism strategy is paying
opportunity. The new preferential trade agreements dividends. Banque Marocaine du Commerce Extérieur
signed by Morocco, combined with upgrading to higher- (BMCE) and a consortium of AttijariWafa Bank and
value added product lines should help Moroccan Groupe Banques Populaires (GBP) each launched
producers to cope with Chinese competition. On the investment funds amounting to 2.5 billion dirhams.
other hand, the entry of new European countries such Foreign investment is flowing into the country’s tourism
as Bulgaria and Romania into the EU in January 2007 sector, with Gulf developers alone having announced
is expected to put further competitive pressures on investments of $14 billion over ten years, in major
Moroccan manufacturers. tourist destinations such as Marrakech and Tangiers. The
construction of four out of seven planned new resorts 381
The other industrial sectors recorded more moderate is underway and a $1.4 billion preliminary agreement
growth, such as the food processing and chemical for the development of the Taghazout station near
sectors, with 1.7 per cent and 6 per cent growth rates Agadir has been signed. The number of tourist arrivals
respectively, for the year ending June 2006. in the year ending October 2006 increased 15.2 per cent,
up from 11.8 per cent over the same period in 2005.
High oil prices led to a downturn in oil refining of By the end of November, the number of tourists reached
9.2 per cent for the year ending October 2006. However, 5.875 million, including 2.645 million Moroccans
new refineries are scheduled to be operational in 2008, living abroad. Almost 40 per cent of these tourists
which should enhance the competitiveness of the sector. originated from France, and 21 per cent from Spain.
Increased imports of electrical energy from Algeria and The main destination cities remain Agadir, Marrakech
Spain supplemented growth in electricity production and Casablanca, which recorded an increase of hotel
by 8.6 per cent in order to respond to growing demand nights of 45 per cent, 29 per cent and 11 per cent
from households (14.1 per cent) and businesses respectively. The increase in the number of tourists
(10.1 per cent). translated to a surge of 23.9 per cent in tourism receipts
to 43.3 billion dirhams at the end of October 2006.
Mining activity recorded a slowdown in 2006, with Airline traffic consequently also rose, with the number
the volume of phosphate exports declining 0.8 per cent, of international passengers increasing by 18 per cent to
following an increase of 18.4 per cent in 2005. Rising reach almost 6 million. This should further be improved
prices of phosphates, however, pushed up the value of by the arrival of two international low-cost airlines,
exports of phosphates, phosphoric acid and manures by Easy Jet and Ryanair in 2006, along with the newly-
10.6 per cent, 7.2 per cent, and 30.7 per cent respectively. created Moroccan low-cost airline Jet 4 You.
The service sector grew 5.8 per cent in 2006, with The communication sector also expanded in 2006,
all major sectors performing well. The construction and should be boosted further by the entry of the third

Morocco
mobile operator, Wana, in early January 2007. The Domestic demand in 2006 benefited from good
other two operators recorded an increase of 24.2 per cent performance in the primary sector, which accounts for
in subscriber numbers to 14.9 million at the end of the 45 per cent of the country’s workforce, as well as from
third yearly quarter. 3G licences were also granted to strong inward remittances and an improvement in
the three telecoms operators in July 2006. The number employment levels. Private demand continues to be the
of Internet subscribers also increased by 73 per cent primary driver of the country’s economy, with 8.9 per
compared with the same period in the previous year. cent growth. Households’ purchases of durables
Offshoring and IT activities are expected to grow by a increased, as reflected by the 20.8 per cent growth in
record 18 per cent, supported by various government consumer loans, and car sales grew at 31 per cent.
incentives and by the opening of the Casablanca shore Public consumption growth slowed to 4.1 per cent
(Casashore) site in March 2007. This site, which provides however, reflecting the effect of the early retirement
incentives and state-of-the art equipment and scheme enacted by the government to reduce the public
technologies, is already attracting major companies such sector wage bill; public consumption is expected to
as BNP Paribas, Axa, Tata Consulting Services, Cap decelerate further in 2007 to 3 per cent. Investment
Gemini, GFI Informatique and Renault. By 2015, the continued to grow at around 6 per cent, but is expected
sector is expected to employ 30 000 people and to slow to 4.5 per cent in 2007 before picking up to
contribute $500 million to the country’s GDP. reach 7 per cent in 2008.

1998 2005 2006(e) 2007(p) 2008(p)
382
(current prices)

Public 3.2 2.9 6.9 5.0 6.9
Private 22.8 27.3 5.8 4.4 7.0
Consumption 77.7 75.9 9.3 2.5 3.4

Public 16.7 19.2 4.1 3.0 3.0
Private 61.0 56.6 10.6 2.3 3.6

Exports 24.4 31.6 7.3 4.9 6.5
Imports -28.1 -37.8 8.7 2.7 4.1
Source: Haut Commissariat au Plan data; estimates (e); and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/783432504442
Macroeconomic Policies Overall receipts remained strong at an estimated

23.4 per cent of GDP in 2006, down slightly from the
Fiscal Policy high of 23.9 per cent in 2005. The government’s efforts
to improve tax collection and the strong economy
Morocco’s fiscal policy has been improving steadily significantly boosted revenues. Direct tax receipts grew
over the past few years. The large deficit recorded in by 14.8 per cent, driven by a 28.8 per cent increase in
2005 was mostly the result of the erstwhile cost corporate taxes collection, reflecting strong corporate
associated with the early retirement plan that was put profit growth. Income taxes, however, only grew at
in place by the government to reduce its wage bill. 2.1 per cent for the year ending October 2006 compared
Overall spending increased consequently by 17 per with a strong 17.5 per cent growth in the same period
cent last year to reach 34 per cent of GDP in 2005. from the previous year, partly as a result of the early

Morocco
retirement scheme. Changes to the tax code, notably Non-fiscal revenues declined by 0.6 per cent in
the decrease in the tax rate applied to high income 2006, partly as a result of the decline in privatisation
taxpayers from 44 per cent to 42 per cent starting in receipts, despite the sale to Altadis of the remaining
January 2007, could further lower revenues. Direct 20 per cent of Régie des Tabacs, the former state tobacco
taxes are expected to increase by 1.2 per cent in 2007 monopoly, as privatisation receipts were less than half
to reach the equivalent of 9.2 per cent of GDP and the expected level. The government privatisation plan
43.9 per cent of total tax receipts. Overall, the revenue for 2007 is also behind schedule with the sale of
to GDP ratio is expected to edge downward to Compagnie marocaine de navigation (Comanav) and
23.2 per cent. Société marocaine du thé et du sucre (Somathès) still
waiting to be launched. The contribution of privatisation
Indirect tax receipts rose 12.2 per cent in 2006 receipts to government revenues is expected to slow
owing to increases of 23.9 per cent and 12.5 per cent down in the medium-term to about 2 billion dirhams
in value added tax (VAT) proceeds linked to domestic per year.
demand and imports respectively. These are forecast to
increase by 8.8 per cent and 8 per cent in 2007, to reach State revenues were also supported in 2006 by
12 billion dirhams and 16 billion dirhams respectively. 4.5 per cent growth in receipts from state monopolies
Stamp and registration duties also increased by 11.9 per and other state activities, and the balance on other
cent, driven by good performance in the construction special accounts. Receipts from state monopolies are
sector, and these are expected to reach 7.3 billion expected to fall 10.7 per cent in 2007.
dirhams in 2007. Customs duties on the other hand
remained broadly stable following the tariff reductions Reductions in government expenditure from the
in compliance with the various trade agreements that early retirement scheme were somewhat offset by large 383
have been signed by Morocco; customs revenues are subsidy payments, especially on petroleum products.
expected to decline by 5.8 per cent in 2007. Total Overall public expenditure declined to 29 per cent of
indirect taxes are nevertheless expected to increase GDP in 2006 from 29.9 per cent in 2005, and should
6.1 per cent in 2007 to reach 44.2 billion dirhams remain steady in 2007.
thanks to enlargement of the fiscal base, with the
conversion to formal and taxable status of part of the Government spending is dominated by current
informal sectors. expenditures, with government investment in recent

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenues 20.4 19.8 20.2 21.8 21.4 21.1 20.7
Grants 0.0 0.1 0.3 0.3 0.3 0.4 0.4
Interest 4.6 3.6 3.5 3.3 3.3 3.2 3.1
Primary balance -2.5 -1.2 -1.0 -2.7 -2.4 -2.5 -2.5

Overall balance -7.1 -4.8 -4.5 -6.0 -5.6 -5.7 -5.6
Source: IMF data estimates (e); and projections (p) based on authors’ calculations. http://dx.doi.org/10.1787/823511858187

Morocco
years only accounting for about 3 to 4 per cent of GDP, bank tightened policy, thus bringing nominal interest
or a tenth of total spending. Wages and salaries of civil rates up. Inflation is expected to slow down in 2007
servants account for almost half of current expenditures, to a range between 2.1 per cent and 2.8 per cent. The
but declined from 11.9 per cent of GDP in 2005 to favourable balance of payments entailed a 29 per cent
11.5 per cent in 2006, and are expected to fall again increase in net foreign assets from July 2005 to July
slightly as a percentage of GDP in 2007 and 2008. 2006.
Subsidy payments amounted to 11 billion dirhams The exchange rate remains pegged to a basket of
in 2006, the equivalent of 2.3 per cent of GDP. These currencies dominated by the euro, the currency of
almost doubled at the end of the third quarter of 2006 Morocco’s main trading partner, despite growing
relative to the previous year, as a result of failure to fully rumours of a move towards a “more flexible” exchange
index domestic petroleum prices to world oil prices rate. Reflecting the strong appreciation of the euro
despite several upward adjustments over the year. Food against the dollar in 2006, the dirham decreased by
prices are also subsidised and insulated against 0.4 per cent in value against the European currency,
fluctuations against world market prices. For 2007, but gained 1.75 per cent against the dollar.
subsidies are, however, expected to fall to 8.3 billion
dirhams, or 1.6 per cent of GDP. External Position
The overall fiscal deficit decreased slightly in 2006 Exports rose in 2006, but at a slower rate than
to 5.6 per cent of GDP from 6 per cent in 2005, and imports and GDP, such that exports-to-GDP fell slightly
are expected to remain at around that level during the from 18.1 to 17.6 per cent while imports-to-GDP rose
384 next two years. With interest on public debt declining from 31.8 per cent to 32.8 per cent. As a result, the
slightly as a percentage of GDP over this period, the trade deficit surged from 13.7 per cent of GDP in
primary balance will stabilise at around 2.5 per cent 2005 to 15.2 per cent in 2006. The trade deficit is
of GDP. expected to recede to about 14.5 per cent of GDP
during the next two years. The large surpluses in services,
Monetary Policy mainly tourism, and remittances, generally more than
offset the trade deficit in recent years, such that Morocco
The autonomy of the central bank Bank Al Maghrib tends to run a current account surplus. In 2006, this
(BAM) was enhanced in 2006, with BAM adopting an surplus dwindled to almost zero from 1.6 per cent of
inflation targeting strategy and improving the GDP in 2005, but it is expected to bounce back to
transparency of its monetary policy. Inflation increased 1.3 per cent in 2007 and 2.3 per cent in 2008. The
from 0.9 per cent in 2005 to 3.3 per cent in 2006, current account surplus, along with rising GDP, has
reflecting mainly higher energy prices. As a result, real entailed a steady fall in the external debt to GDP ratio
interest rates fell to negative levels until the central from over 50 per cent in 2000 to under 30 per cent in

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -7.8 -8.7 -11.5 -13.7 -15.2 -14.6 -14.5

Services 4.2 5.3 5.8 7.3 8.0 8.4 9.2
Factor income -2.6 -1.6 -1.2 -1.0 -0.9 -0.8 -0.8
Source: IMF data estimates (e); and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/112063214587

Morocco

Source: IMF. 385

http://dx.doi.org/10.1787/702066348001
2006, with a further decline to below 25 per cent achieve enhanced growth and improve human
forecast in 2008. development indicators. Nevertheless, it remains to be
seen whether the new initiatives will be more successful
The best export performers in 2006 were than previous reform efforts, which have lagged due
phosphates and textiles; fish and electronic components to the government’s reluctance to tackle some politically-
exports also increased. sensitive issues, such as labour-market rigidities and
protected industries.
Booming domestic demand led to a 10 per cent rise
in imports in 2006. Rising oil prices pushed up the The initiation of the Plan Emergence, which was
energy bill by 13.2 per cent to reach 37.1 billion formulated in late 2005, is probably the major event
dirhams for the year ending October 2006, despite a of 2006. This plan is aimed at both improving
decline in the volume of oil imported. competitiveness in traditional industrial sectors (textile,
food processing and fisheries) and supporting the
emergence of newer sectors (offshoring, automotive
Structural Issues parts, electronic components and aeronautics). It is
hoped that the resulting export boom will yield an
Recent Developments additional 1.6 per cent increase in annual GDP growth
over the next ten years, reduce the trade deficit by
Having embarked on the path of trade liberalisation 50 per cent and create 440 000 new jobs.
and amplification of its economy, Morocco is fully
aware of the need to accelerate structural reforms and To achieve these ambitious objectives, the
improve infrastructure. A wide-ranging reform government has proposed a series of actions over the
programme has been launched by the authorities to short- to medium-term. These include the establishment

Morocco
of several industrial zones in a number of cities around is set to increase by 10 000 hectares per year to help
the country, dedicated to the outsourcing of automobile the country cope with frequent droughts. Water-
manufacturing, and production of electronics demanding crops such as cereals will gradually be
components for automobiles, airplanes and medical replaced by fruit-bearing tree crops such as olives, dates
care. These should generate 12 billion dirhams in export and almonds, with the government subsidising up to
revenues and create 55 000 new jobs by 2015. 80 per cent of the cost of seedlings and reducing interest
rates on equipment and campaign loans to 5.5 per
To develop offshore services in Morocco, the cent and 5 per cent respectively.
authorities will focus on human resources development
and on the creation of dedicated zones with state-of- In order to make the most of its privileged
the-art infrastructure in order to attract international geographic location, Morocco intends to become a
companies. One such zone is “Casashore” which regional investment and trade platform between Europe,
should be operational in March 2007. Office rents at the United States, the countries of Southern Europe
EUR 8 per square metre, corporate tax holidays for and Sub-Saharan Africa. The country has therefore
the first five years, low sales taxes and import duties invested heavily in infrastructure over the past few
at 2.5 per cent, are among the incentives offered at years, and these efforts will be intensified in the near
the site. The government also signed a contract future. The authorities plan to triple the rate of highway
programme with the APEBI, the IT professional construction from 50 kilometres per year to 160
association in September 2006, to promote the kilometres in order to ease traffic, not only between
development of IT activities in the country. Overall, Moroccan cities but also cross-border between the
the development of business processes outsourcing in country and its neighbours. In addition, a 550 kilometre
386 Morocco should produce more than 2 billion dirhams bypass linking the Tanger Méditerranée port to the city
in additional revenues by 2010. of Saidia in the North is planned.
The government continued the privatisation To enhance the competitiveness and dynamism of
programme initiated in 2003. Seventy out of 114 entities its private sector, the Moroccan government has put
initially listed for sale were privatised by late 2005, in place a series of measures to encourage greater lending
generating 76.7 billion dirhams in receipts for the to small and medium size enterprises (SMEs), and to
government. Additional proceeds amounting to create an additional 200 000 jobs by 2008. The
4.6 billion dirhams were received in 2006, with the sale authorities launched the Moukawalati programme of
of the remaining 20 per cent of Régie des Tabacs to the SME finance, thus providing state guarantees and
Spanish group Altadis and 100 per cent of Somathès. financial, legal and technical coaching services. The
In 2007, the government expects to collect an extra programme aspires to create 30 000 new enterprises and
4.5 billion dirhams from privatisation activity, notably 90 000 new jobs by 2008, targeting potential
from the sale of 4 per cent of the telecom operator entrepreneurs below 45 years of age who are unemployed
Maroc Telecom through the stock exchange, and the but wish to start their own venture with an investment
concession of DRAPOR, its port maintenance company, of up to 250 000 dirhams. Further development of the
along with the sale of 78.8 per cent of Comanav, the Moroccan private sector also depends on the
state shipping company. government’s actions to reduce the costs of energy,
finance and taxes, to improve labour laws, to lessen the
Agriculture faces strong challenges with the burden of bureaucracy and enhance the transparency
expansion of the economy and the arrival of foreign of judicial processes.
products on the Moroccan market. Consequently, the
authorities have designed a plan to improve The Moroccan financial sector is regarded as one
competitiveness in the sector, through improved of the most developed in North Africa, following the
irrigation, regulation and land tenure. Irrigated land wave of reforms during the 1990s, and more recently

Morocco
a new law granting greater autonomy to BAM, and In 1995, a water law was promulgated. This
aligning Morocco’s prudential regulations with the represented a major advance, through the creation of
Basle II requirements. There are currently fourteen regional River Basin Authorities to manage water
commercial banks in the country, most of which are resources at local level.
partially owned by French banks. The largest private
sector banks are Attijariwafa Bank and BMCE, which The Office National de l’Eau Potable (ONEP) is
are diversifying into countries such as Tunisia, Senegal responsible for overseeing national water policies. It also
and Algeria. The largest bank in terms of market share is in charge of sewerage facilities in some cities, but not
is the state-controlled Crédit Populaire du Maroc (CPM), in rural areas. Municipalities are responsible for rural
which holds 27 per cent market share and reported assets sanitation, but they lack both the financial and technical
worth $11.1 billion in 2005. The remaining semi- capacity to successfully complete their task. As a result,
public banks (CIH, CAM, BNDE and BMAO) are in hygiene and sanitation are often deficient in rural areas.
the process, at varying speeds, of being transformed into Major funding from the World Bank and the African
universal providers, thus enhancing competition in a Bank for Development is supplemented by aid from
market that is so far largely dominated by three banks, other institutions [UNDP, FAO, UNICEF, USAID, the
namely CPM, Attijariwafa Bank, and BMCE. Arab Fund for Economic and Social Development
(AFESD), the Islamic Bank and OPEC] and nations
Access to Drinking Water and Sanitation (Japan, Belgium and Italy).
Water and sanitation accessibility are major concerns The National Initiative for Human Development
in Morocco. Since independence, successive launched by King Mohammed VI in May 2005
governments have attached importance to these issues emphasises the importance of water for sustainable 387
in their development programmes. However water is economic growth. In this respect Morocco has embarked
still an issue of considerable importance to the Moroccan on implementing a series of strategies in the effort to
authorities in a context where the country’s water increase access to water in both urban and rural
resources are relatively scarce and are constantly populations. In the last ten years, 14 million additional
threatened by droughts. Drinking water has become users (nearly half of the population) have been connected
scarce in some regions, including large cities, with the to drinking water supplies. Specific policies have been
country having experienced four droughts during the implemented by the operators Lydec in Casablanca
1990s alone. (Suez), Redal in Rabat and Amendis in Tanger and
Tetouan (Veolia) in order to provide water connections
In the early 1970s, the late King Hassan II launched to low-income families in peri-urban settlements.
a barrage strategy for all Moroccan basins and rivers Production capacity has been multiplied by 5 and
which aimed to irrigate up to 1 million hectares. This reached 55 m3 per second in 2003. During the same
policy led to progress in developing the country’s water period the population connected to potable water
resources, yet significant disparities persist in the soared from 2.8 million to 13.5 million. The connection
distribution between basins, and the prospects for 2020 ratio to drinking water increased by 1 per cent per year
suggest increasing scarcity as the population grows. over the period 1992-2002. ONEP expects to achieve
92 per cent access to potable water in urban areas by
In the early 1980s, the country introduced 2007. The connection ratio is expected to reach 100 per
management procedures at hydrographic basin level. cent by 2015.
Administrative structures were then created to establish
the basis for a global water management policy, taking Access to water in rural areas is much more
into consideration surface and ground waters, their restricted than in urban areas. This is mainly due to
quantity and quality aspects, as well as water-users, as the dispersion of the rural population. The “Programme
part of this same approach. d’Approvisionnement Groupé en Eau Potable des

Morocco
Populations Rurales” (PAGER), launched in 1995, The risk of terrorism from Islamic radicals and the
raised the access to water ratio of rural areas to 55 per continuing tensions with Algeria over the Western
cent in 2003. This ratio is expected to increase by Sahara are at present not serious enough to disrupt the
3 per cent per year to reach 100 per cent access by 2015, mostly favorable political and economic environment.
with an interim target of 92 per cent ratio before the
end of 2007. To facilitate access to education, medical services
and transportation, as well as create job opportunities
Regarding sanitation services, urban areas have for rural populations, the government launched the
witnessed significant progress in comparison with rural first “Programme National des Routes Rurales” (PNRRI)
provinces. Sanitation coverage is low relative to in 1995 to build approximately 11 000 kilometres of
Morocco’s level of per capita income. Morocco still rural roads. By 2004, the programme had completed
has one of the lowest rural water supply and sanitation 10 600 kilometres of roads, pushing the road accessibility
access rates in the Middle East and North Africa, ratio up to 54 per cent. A second ten-year programme
averaging 56 per cent for rural water supply and only was subsequently implemented in 2005 to build 15 500
35 per cent for rural sanitation. To address these issues, kilometres of roads and reach an accessibility ratio of
the Moroccan government has developed the Rural 80 per cent by 2015.
Water and Sanitation Project, funded by a $60 million
World Bank loan, $4.42 million of which is dedicated The “Programme d’Electrification Rurale Global”
to hygiene promotion and sanitation. The World Bank (PERG) seeks to provide electricity to two million rural
has also provided technical assistance to the Moroccan households in 34 000 villages by 2007, up from 400 000
government through the Sanitation, Hygiene and households in 1994 when the programme first started.
388 Wastewater Support Service (SWAT) to increase
coverage, enhance reliability, and improve hygiene In order to meet the Millennium Development
education. Although this technical assistance and the Goals (MDG) set for 2015, the Moroccan authorities
subsequent work by ONEP have contributed to a have designed a wide-ranging programme to improve
better understanding of rural hygiene and sanitation social conditions in the country. Substantial progress
needs, rural access to sanitation and water remains has been made towards poverty reduction, education,
below that of other countries in the region. and infant mortality reduction Millennium
Development Goals. In May 2005, King
Mohammed VI launched the “Initiative Nationale pour
Political Context and Human le Développement Humain” (INDH) programme to
Resources Development reduce inequality and poverty, and improve human
development in the country. The priorities include
Morocco’s political situation remains stable, with slum clearance and public housing in cities, as well as
King Mohammed VI remaining popular despite the modernisation of agriculture, as discussed previously.
continuing problems of poverty and unemployment.

Mozambique
Maputo
key figures
Mozambique
M OZAMBIQUE HAS ACHIEVED IMPRESSIVE economic Since mega-projects generate limited spillover effects
expansion since the end of the civil war. Over the past on the rest of the economy and contribute relatively
five years, growth averaged 8.9 per cent, spurred by little to job creation and tax revenue, broad-based
foreign-financed “mega-projects” and large aid inflows. growth remains a major challenge. Although the 2006
The economy is estimated to have expanded by 7.9 per bumper agricultural production and the favourable
cent in 2006, supported by investments in the extractive prospects for the next harvest season can be expected
industry, favourable harvests, and continuing to improve rural incomes
Continued expansion in
infrastructure rehabilitation projects. and maize stocks,
construction and the coming
agricultural performance
on stream of Mega projects is
On the basis of continued expansion in construction remains erratic and
boosting growth in Mozambique
and the coming on stream of investment projects, vulnerable to climatic
while a second wave of reforms
including Moma Titanium Minerals, growth is expected shocks. Securing sustainable
is aimed at reducing poverty.
to reach 7.3 per cent in 2007 and 6.8 per cent in 2008. agricultural development
Further improvements in transport, especially railways requires a clearer sectoral strategy and complementary
and ports, and in energy provision are essential for the policies. Similarly, the lack of a coherent strategy to
successful implementation of pending mega-projects promote industry inhibits the country’s potential in agro-
in the extractive industry. processing, light manufacturing, and tourism. 391

■ Mozambique - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Mozambique - Real GDP Growth (%)
14 8000
7000
12
6000
10
5000
8
4000
6
3000
4
2000
2
1000
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/137432776810

Mozambique
The country’s development strategy is framed in performances in basic health services (HIV/AIDS
the Plano de Acção para Redução da Pobreza Absoluta antiretroviral therapy [ART] coverage), and in water
II (Action Plan for the Reduction of Absolute Poverty (rural water supply and sanitation).
II – PARPA II) for 2006-09, which aims at reducing
the incidence of poverty from the current 54 per cent Better human resource management, more
to 45 per cent in 2009. To achieve this target, the predictability of funds from the central government,
government is consolidating macroeconomic stability and greater clarity in the processes of decentralised
and undertaking a second wave of structural reforms, planning and budgeting should be key priorities
encompassing the public sector, fiscal policy, in order to ensure the successful implementation
governance, and the business climate. The of the PARPA.
implementation of a computerised integrated budget
and treasury management system (e-SISTAFE) has
contributed to improved public expenditure Recent Economic Developments
management. Revenue collection has increased
moderately too. To boost revenue further, it will be Mozambique has been one of the world’s most
necessary to broaden the tax base, especially in the rapidly growing economies over the past five years,
extractive and informal sectors, and to strengthen tax with much of the impetus coming from reconstruction
administration. The government is committed to efforts and extensive foreign investment in projects
improving the transparency of special tax regimes for based on natural resources.
mega-projects and to reducing fiscal exemptions for
new ones. In line with the PARPA target, the In 2005, GDP increased by 6.2 per cent in real
392 government is increasing spending in priority areas (to terms. This increase was led by industry, which expanded
65 per cent of total expenditure) and undertaking 7.8 per cent, mainly due to mining and electricity. The
huge infrastructure rehabilitation projects. This increase service sector followed, also growing strongly at 7.6 per
in spending will be comfortably financed by rising cent. Agriculture and fishing registered a modest growth
aid inflows and, to a lesser extent, by resources freed rate of 1.6 per cent. Real GDP is estimated to have risen
up by the Multilateral Debt Relief Initiative (MDRI). by 7.9 per cent in 2006, with 10.9 per cent growth in
agriculture and strong performance (15 per cent) in the
Nevertheless, progress in other structural reforms extractive industry.
has been slow. Despite the large reduction in the number
of days needed to register a new company, deep-seated In 2005, agriculture and fishing accounted for
constraints to private-sector development remain, 20 per cent of GDP, but 78.5 per cent of total
notably the weak judicial system. In addition, employment. While fishing benefited from a strong
institutional and capacity bottlenecks lead to very poor rebound, agricultural output suffered from a drought
Other services
Finance and business services Agriculture and fishing
Government services 3.3% 5.4% 19.7%
Hotels and restaurants 6.6%
1.2%
Mining and quarrying
0.9%
12.8% Manufacturing
5.9%
21.2% 6.4% Electricity and water
Trade Construction

http://dx.doi.org/10.1787/514310354573

Mozambique
in some regions. In 2006, abundant and regular rainfall production doubled. The authorities expect fishing to
and the timely provision of agricultural inputs grow by 3.3 per cent in 2006 and 3.5 per cent in 2007.
contributed towards the best harvest over the last five Growth in livestock, which accounts for 1.6 per cent
years, triggering a strong recovery of agricultural of GDP, remains disappointing, as the sector is disease-
production (6.5 per cent growth). It is estimated that prone and suffers from inadequate feeding.
cereal production reached 2.1 million tons (maize alone
accounting for 1.5 million), which was 10 per cent Industry’s share of GDP expanded sharply from
higher than the previous season. Outputs of pulses and 16 per cent in 1996 to 26 per cent in 2005; this increase
cassavas are estimated to have risen by 10 and 14 per is largely due to mega-projects in the extractive industry
cent, respectively. Notwithstanding this progress, the sector. Nevertheless, due to high capital intensity, profit
authorities assessed the domestic cereal deficit at repatriation, and fiscal incentives, the mega-projects
565 000 tons, mainly due to the lack of wheat and rice. generate relatively minor benefits in terms of employment,
transport linkages, and foreign-currency earnings.
Assuming favourable weather conditions and the
adequate provision of inputs and extension services, a Manufacturing expanded by 8.5 per cent in 2005
12.2 per cent increase in agricultural output is expected and an estimated 5.7 per cent in 2006. The Mozal
in 2007, led by rice and maize production. aluminium smelter in Maputo Province, created with
a $2.1 billion investment by Australian and South
The production of cash crops (cashew nuts, cotton, African interests, now accounts for half of manufacturing
sugar and tobacco) also rebounded in 2006, although output, and has made Mozambique one of the world’s
agricultural diversification remains limited. Sugar leading exporters of aluminium. Mozal’s output edged
remains the leading sector. After an extraordinary 2005 up to 555 000 tons in 2005 compared with 549 000 393
harvest, the best for three decades, sugar-cane production in 2004. The feasibility studies for further expansion
decreased in 2006 by about 3 per cent, due to lower- (Mozal 3), which would increase capacity by an
than-expected rains in Marromeu and Mafambisse. additional 250 000 tons per year by 2009, were
Cashew nut production more than doubled between completed. The food, beverages, and tobacco sub-
the 2004 and 2005 seasons, attaining 104 000 tons, sector is the second-largest manufacturing sub-sector.
reflecting in part a peak in biological productivity. Sugar and molasses production each fell an estimated
Production is estimated to have fallen in 2006 to around 1 per cent in 2006, due to lower-than-expected cane
62 800 tons, but is projected to increase gradually over production. Ethanol fuel production is still very limited,
the following five years. New production areas are although the government plans to develop both
being developed in the south. Cotton production bioethanol and biodiesel programmes. Petromoc has
declined 15 per cent to 78.5 thousand tons in 2005, signed a co-operation agreement with South-Africa’s
but increased to around 110 thousand tons in 2006. Cofamosa to invest $150 million in an ethanol plant
Tobacco registered an impressive 30 per cent increase in Moamba which will use sugar-cane. The Portuguese
in output in 2005, but declined slightly in 2006 and group Nutasa is building a similar plant in Maputo.
is expected to level off in 2007. The government’s decision to promote domestic
tobacco-processing by stipulating that growers’ use of
Fishing accounts for about 2 per cent of GDP. In the most favourable land would be subject to the
2005 the sector rebounded by 3.6 per cent after condition that they constructed processing plants led
experiencing a 3.8 per cent contraction in 2004. Alliance One International to close down its operations
Aquaculture and traditional fishing were the main and withdraw from the country. Mozambique Leaf
drivers of growth, as industrial and semi-industrial Tobacco, a subsidiary of the American Universal Leaf
fishing declined by 13 per cent, mainly due to a 65 per Africa Company, was awarded Alliance One
cent reduction in the tuna catch. Following the International’s concession, and opened the first green-
expansion of prawn-farming areas, aquaculture leaf processing plant in the country in May 2005.

Mozambique
After expanding by 11 per cent the previous year, while new petroleum exploration began in 2006 in
output from the extractive industry sector is estimated the northern Rovuma Basin.
to have increased by about 15 per cent in 2006, with
a strong rebound in coal production following the The construction sector is heavily influenced by
modernisation of the Chipanga-IX mine. The sector mega-projects. This sector expanded by 3.8 per cent
is expected to expand further with the construction of in 2005. A new cement factory in Nampula is expected
the Moatize coal project and thermal power plant. The to alleviate the shortage of cement. A stronger expansion
Brazilian Companhia Vale do Rio Doce, which has in construction is expected in 2006 and 2007, due to
already invested approximately $80 million in the the implementation of several public-investment
project over the last two years, has delivered the feasibility projects, especially the construction of the Zambezi
studies to the government and should start production Bridge, and the start of new mining projects.
in 2010. The development of the mine requires
rehabilitation of the Beira-Tete railway and the The service sector, which generates about 46 per
construction of an export terminal at Beira port. The cent of GDP, grew by 7.6 per cent in 2005, led by
Moma Titanium Minerals Project, which will produce 15 per cent growth of transport and communications.
more than 750 000 tonnes of mineral sands a year, is The Minister of Transport and Communications
almost completed, and production should start in announced plans to review the telecommunications
2007. The Irish firm Kenmare Resources has already law and the possibility of clearance for a third cellular-
announced that it intends to expand Moma’s capacity telephone operator to compete against state-owned
in the second half of that year. Sasol plans to double M-Cell and Vodacom. A second fixed-line operator is
its gas production in Mozambique in the coming years, likely to be licensed before the end of 2007.
394

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 9.8 12.5 45.0 15.0 8.0
Private 14.5 17.4 15.0 15.0 15.0
Consumption 93.2 82.0 2.3 3.3 5.3

Public 10.4 12.9 8.6 6.2 5.0
Private 82.8 69.1 1.6 3.0 5.3

Exports 10.5 30.9 6.7 6.7 6.2
Imports -27.9 -42.9 6.7 3.9 7.1
http://dx.doi.org/10.1787/612366457406
The government’s large-scale infrastructure rehabilitation, public investment is expected to continue

programme, investments in the extractive industry, to grow by 15 per cent in 2007 and 2008. The expansion
and high mineral exports were the main motors of in construction that accompanied the new wave of
growth in 2006. Development projects, notably in mega-projects and the continued influx of foreign
donor-supported transport infrastructure rehabilitation, investment have led to a 15 per cent growth of private
led to a jump of about 45 per cent in public capital investment in 2006; private investment is projected to
expenditure in 2006. Due to other large infrastructure remain strong in 2007 and 2008. Thanks to the results
projects, especially in urban renewal and road of the mega projects, extractive-industry exports have

Mozambique
increased dramatically over recent years, and are expected of 65 per cent expenditure execution rate in the priority
to continue to grow substantially in the next two years. areas fell just short of target, at about 62 per cent.
Nevertheless, investment at the district level improved
in the second semester. Public-sector wage expenditures
Macroeconomic Policies increased considerably, reflecting the recruitment of
teachers and health workers.
Fiscal Policy
Public-sector reform was given fresh impetus, first
Mozambique’s development strategy for the next with the creation of the new National Civil Service
five years is detailed in the Plano de Acção para Redução Authority which reports directly to the President of the
da Pobreza Absoluta II (PARPA II) for 2006-09. The Republic, and second, through the preparation of Phase
PARPA II’s main objective is to reduce the incidence II of the Public Sector Reform Programme (2006-
of poverty from the current 54 per cent to 45 per cent 2011), which focuses on strengthening the
in 2009. To achieve this target, the government plans decentralisation process. Equal allocations of about
to continue its efforts to consolidate macroeconomic $300 000 per district were made during 2006, although
stability and to implement a second wave of structural execution was lower than expected, owing to delays in
reforms, encompassing the public sector, fiscal policies, issuing the guidelines on permissible uses of these
governance, and the business climate. Compared to funds. Some ambiguities remain over the division of
the earlier development strategy (PARPA I) with its revenue and spending responsibilities; the effective
strong focus on investment in social sectors, the new absorptive capacity of local agencies is also a major
PARPA places more emphasis on promoting growth problem. To clarify the decentralisation strategy, a
and the modernisation of the economy, and points proposal to formulate the National Decentralisation 395
to decentralisation and development at the district Policy and Strategy was prepared in March 2006.
level as key objectives. PARPA II calls for greater Progress was also made with the preparation of the
investment in economic sectors, especially agriculture National Decentralised Planning and Financing
and infrastructure, and for creating a favourable Programme (PPFD); also, the Administrative Tribunal
business climate, especially for small and medium- (TA) performed district audits in four provinces.
sized enterprises.
On a negative note, the government’s rising
Foreign assistance, which already finances more indebtedness to construction contractors, linked to
than 40 per cent of the government’s expenditures, is delays in refunding VAT, remained a major problem
expected to rise further. To improve aid effectiveness in 2006. An assessment of the magnitude of the problem
and accountability, the government and donors have is being carried out for the road sector, and donors
agreed on a series of indicators and targets in the areas have decided to finance an audit to determine the size
of public finance, governance, HIV/AIDS, education, of the accumulated debt.
and justice.
At 11.8 per cent, Mozambique’s tax revenue to
The 2006 mid-year joint review between the GDP ratio remains much lower than that of its
government and donors in September 2006 noted that neighbours and than the average of 24 per cent for
the overall performance of fiscal policy was encouraging. sub-Saharan Africa. Efforts to increase domestic revenue,
A new computerised system for recording expenditure which were already substantial in 2005, continued in
(e-SISTAFE) was implemented in a number of 2006, and were partly reflected in the collection of
ministries, enabling improved monitoring of corporate tax and VAT. Some progress was made in
expenditures in priority sectors. 57 per cent of improving the collection of tax arrears, strengthening
expenditures were in the priority sectors of health and tax administration, and broadening the tax base.
education, surpassing the 50 per cent target; the goal Nevertheless, the establishment of the Central Revenue

Mozambique
Authority (ATM), which was expected for September areas, and in particular in transport rehabilitation, was
2006, was delayed. mostly covered by large aid inflows and, to a lesser
extent, by resources freed up by the Multilateral Debt
The prospects of widening the tax base further Relief Initiative. High spending on poverty-reduction
suffer from special tax regimes for mega-projects, projects, including infrastructure, is expected to continue
including preferential corporate tax rates, tariff in the medium term, and to be mainly financed by rising
exemptions, and tax deductions for social and aid inflows.
environmental expenditures, all of which lack
transparency. In this respect, donors and the Revenue collection is expected to improve further
government are reviewing the fiscal impact of these in 2007 and 2008, reflecting the full implementation
projects. The government is also considering joining of the Central Revenue Authority. Discussion over the
the Extractive Industries Transparency Initiative (EITI), fiscal contribution of mega-projects will continue, with
but needs first to assess its ability to comply with the the aim of renegotiating the tax regime and reducing
associated obligations. fiscal exemptions for new investment. Despite the
gradual improvement in revenue mobilisation and in
Overall, the fiscal situation improved in 2006. The the growth of grants, the overall deficit is expected to
substantial increase in government spending in priority deteriorate slightly, reflecting high spending on public-

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
396 Tax revenue 10.5 12.0 11.7 11.8 11.8 11.8 11.8
Grants 9.5 7.5 6.3 9.8 10.7 11.0
Interest 1.0 1.2 1.0 0.8 0.8 1.0 0.9
Primary balance -1.4 -3.3 -3.5 -1.5 -1.3 -1.8 -1.8

Overall balance -2.4 -4.5 -4.5 -2.3 -2.0 -2.8 -2.7
Source: Ministry of Finance and Planning and IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/744777686373
sector wages and in priority social sectors, as well as large for average inflation. Nevertheless, inflation registered
development projects in road rehabilitation and urban a steep increase in the first quarter. The combined
renewal. The deficit is therefore expected to average effect of rising petrol and food prices led to a surge in
2.8 per cent of GDP in 2007 and 2.7 per cent in 2008. inflation from 3.2 per cent in May 2005 to 17 per
cent in April 2006. In response, monetary policy was
Monetary Policy tightened through open-market operations in the first
half of the year, pushing up the Treasury Bill rate to
The Bank of Mozambique has successfully stabilised 17.5 per cent in May 2006, an 8 percentage-point
inflation, following hyperinflation in the early 1990s, increase since October 2005.
by restraining broad money growth. Inflation averaged
6.4 per cent in 2005, compared to 12.3 per cent in 2004. A restrained monetary policy, stable international
For 2006, the Central Bank fixed a target of 15 per cent oil prices, the appreciation of the metical, and a
for broad money growth, with a target of 7.5 per cent favourable agricultural season all contributed to the

Mozambique
deceleration of inflation in the third quarter of the volumes boosted exports in 2006. Preliminary data
2006, reaching a low of 10.6 per cent in August. suggest that merchandise exports reached $1.75 billion
However, it accelerated again to 12.7 per cent in in the first nine months of 2006 (up 39 per cent
September, reflecting rising food prices at the start of compared with the same period in 2005), offsetting a
the lean season from October to March. Inflation then 24 per cent growth in imports. The new projects in the
edged up in the last months of 2006, mainly owing to extractive industry sector are forecast to boost imports
the seasonal price hikes, so that it averaged 12.6 per of capital goods in 2007 and 2008, thus causing a
cent for the year. deterioration in the trade balance, since their
contribution to export growth takes time to develop.
Monetary policy is expected to remain tight in Gross international reserves increased from 4.6 months
2007 and 2008, with inflation targets of 5.9 per cent of imports of goods and services in December 2005 to
and 5.1 per cent for 2007 and 2008, respectively. 5.1 months at the end of June 2006.
Despite weaker oil and food inflationary pressures,
increased government spending and domestic Mega-projects play a major role in Mozambique’s
consumption are forecast to exceed target levels, at trade, accounting for about 72 per cent of exports and
8.1 per cent and. 5.7 per cent in 2007 and 2008, 17 per cent of imports. Base metals are the leading
respectively. export, accounting for about 60 per cent of export
revenue. Aluminium from the Mozal project is the
The authorities are committed to a flexible exchange- single largest earner of foreign exchange. However,
rate regime, and in January 2005 they introduced a since the smelter uses imported alumina as raw material,
foreign-exchange auction system. In response to various its contribution to the net trade balance is limited.
shocks such as large oil-import transactions, the currency Natural gas (associated with the Sasol pipeline to South 397
experienced considerable volatility in 2005 and 2006, Africa) is the second-largest export item (14.3 per cent).
reflecting the thin foreign-exchange market. To cushion Other major exports include fish and crustaceans (5 per
volatility and depreciation pressures, the Bank of cent), cotton (3.5 per cent), tobacco (2.5 per cent) and
Mozambique introduced an exchange-rate band in the sugar (2.2 per cent).
inter-bank foreign-exchange market in the last quarter
of 2005. Since June 2006, the currency has remained Mozambique’s imports are dominated by
fairly stable against the US dollar. mechanical and electrical machinery, vehicles, and iron
and other inputs used by mega-projects. Despite an
The Ministry of Planning and Finance instituted improved harvest, the country remains a substantial
a redenomination of the currency, with new metical importer of cereals, especially wheat and rice.
bank notes equivalent to 1 000 of the old notes. From
1 July 2006, the new and old notes circulated Preferential exports to the European Union (EU)
concurrently; the old notes were fully withdrawn by benefited from the additional Everything But Arms
the end of the year. Commercial banks will exchange (EBA) sugar quota awarded to Mozambique as the
old notes against new ones until 31 December 2007. result of other Least Developed Countries (LDCs)
being unable to meet their allocations for the year
External Position ending June 2006. Sugar exports are expected to grow
35 per cent in volume and 32 per cent in dollar terms.
Mozambique’s current account deficit rose to About half of sugar exports benefit from preferential
10.8 per cent of GDP in 2005 from 8.6 per cent in market access agreements, with prices set above those
2004. The trade balance deteriorated in 2005 as exports, in the world market.
which increased from $1.50 billion to $1.75 billion,
rose less than imports (from $2.03 billion to A major concern for the sugar industry is the reform
$2.47 billion). A surge in aluminium export prices and of the EU sugar regime and the associated 36 per cent

Mozambique
reduction in the guaranteed price over the period Community (SADC) means that a schedule of tariff
2006/07-2009/10. Given the relatively small quota reductions will be imposed on intra-regional imports
allocated to Mozambique within the Sugar Protocol and beginning in 2008, and leading to the complete
the fact that the reference price will still be higher than elimination of tariffs by 2015. In January 2006, the
the international price, the immediate impact of the government reduced the maximum tariff rate from 25
reform will not be dramatic. A more serious concern to 20 per cent on imports from SADC countries and
is the longer-term competitiveness of the industry once submitted a proposal to the Assembly to extend this
the international sugar market is liberalised. Starting measure to all trading partners. Negotiations with
from September 2009, the EU will grant unlimited Zambia for a preferential trade agreement were
duty-free access to all LDCs, thus offering an concluded, but a final agreement has not been signed.
opportunity to expand market access for Mozambican
producers. To seize this opportunity, investment is The negotiations for the EU-SADC EPA, which
needed to expand production and achieve greater began in 2002, entered a new round in September
economies of scale. 2005, and are scheduled to be completed in late 2007.
The objectives of the EPA include liberalised trade
The three-year fishing agreement with the EU, between SADC and the EU in the longer term, and
which gave access to Mozambican waters to European EU support for trade capacity building in the medium
fishing vessels in exchange for fees from each vessel term. At present, Mozambique benefits from non-
and a 4 million euros annual compensation fund, reciprocal tariff-free access to the EU under the EBA
expired in 2006. The renegotiation of the agreement initiative for LDCs. Although the EU has made a
reached a standstill over the EU’s proposal to exclude commitment to grant EBA to LDCs in an open-ended
398 some less-profitable species. manner, it is not clear yet how the special status will
be treated under EPA’s reciprocal liberalisation principle.
Frozen fish and crustaceans – mainly shrimps and EPA negotiations are at a standstill, mainly because
prawns – generated export revenues of $84.3 million of: the overlapping memberships of participating
in 2005. However, the sector has been at risk since a countries in different regional trade blocs; the role of
recent EU inspection revealed serious sanitary problems, South Africa (which already has a bilateral trade
due to declining human and financial resources allocated agreement with the EU and a customs union with
to supervision. Prawns farmed by one aquaculture other four SADC members); and the issue of special
enterprise operating in Beira were banned from Europe. treatment for LDCs.
An emergency plan was launched to tackle this problem.
Abundant natural resources have made
Mozambique’s principal export market is the EU, Mozambique one of the magnets for foreign direct
to which 100 per cent of Mozal’s aluminium is exported, investment (FDI) in southern Africa. The stock of
reflecting Rotterdam’s role as a hub for the trans- FDI attained $2.4 billion in 2005. Following the
shipment of aluminium. Other important export completion of mega-projects in 2003, FDI inflows
destinations include South Africa, Zimbabwe, and slowed down, declining to $108 million in 2005
Malawi. The largest source of imports is South Africa, compared to $337 million and $245 million in 2003
followed by the Netherlands, Portugal, India and the and 2004, respectively. Inflows are expected to increase
United States. again as new projects in mining and tourism start.
The expansion of Mozal and Corridor Sands are
Two major processes will shape the country’s trade amongst the largest potential investments. BHP
policy in the coming years, notably regional integration Billiton, owner of Mozal, has taken over the Corridor
and the negotiation of an Economic Partnership Sands titanium project from WMC Resources in 2005.
Agreement (EPA) with the EU. Mozambique’s The development of both projects will be heavily
membership of the Southern African Development influenced by the outcome of negotiations on long-

Mozambique

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -14.5 -14.5 -9.0 -10.6 -6.4 -8.1 -9.7

Services 1.0 -1.2 -4.7 -4.5 -1.4 -1.4 -1.6
Factor incomea -5.4 -4.1 -5.8 -6.1 -4.7 -9.5 -9.2
a. Factor income is included in services.

Source: IMF and Bank of Mozambique data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/181467010311
term power-supply contracts. Moreover, given BHP cent in real terms), yielding a very high aid-to-GNI ratio
Billiton’s partnership with Rio Tinto, the future of of 21 per cent. Assistance mainly consisted of grants
the Corridor Sands project will also depend on the (78 per cent of the total), and was largely for general
latter’s decision to pursue the development of its own budget support. Direct budget and sectoral support in
titanium project in Madagascar. 2006 amounted to $297.5 million and is expected to
rise to $583 million in 2007. Co-ordination among
Mozambique is among the world’s largest recipients donors is exemplary.
of Official Development Assistance (ODA). Disbursed
net ODA (including from non-DAC donors) amounted Mozambique’s stock of foreign debt stood at
to about $1.3 billion in 2005, a 3.2 per cent increase $4.7 billion in December 2005, a 7 per cent increase 399
in nominal terms with respect to 2004 (about 1 per over 2004; 54.5 per cent of this debt was owed to

160
140
120
100
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/843507303745

Mozambique
multilateral creditors. The biggest share of the bilateral Notwithstanding this progress, there remain serious
debt is held by non-Paris Club countries. In 2006, the problems related to corporate governance and lack of
country benefited from significant debt relief. The competition. A weak judicial system has been largely
Multilateral Debt Relief Initiative (MDRI) cancelled ineffective in resolving commercial disputes and
debt of about $1.6 billion (of which, $1.3 billion by protecting intellectual property rights. Counterfeited
the World Bank), while the Japanese government goods are widely found in the streets, damaging legitimate
provided full debt relief, amounting to $60 million. producers and tax revenues. Dominant incumbents and
Portugal has expressed its intention to cancel commercial lack of competition in the service sector are often
debt too. These operations should bring down the net mentioned as a major constraint on private-sector
present value of the debt from 25 per cent to 12 per development. The mingling of politics and business
cent of GDP. Debt service, which amounted to also contributes to the hostile business climate.
$24 million in 2005, fell to about $21 million in 2006,
or a mere 1.6 per cent of export revenue. The Business representatives complain about high
government has also decided to buy back its remaining severance payments and the difficulty of layoffs, as well
outstanding commercial debt, amounting to as restrictions on hiring expatriates. The Labour
$175 million. Consultative Commission, a tripartite forum with
representatives from government, trade unions, and the
employers’ associations, agreed on a draft reform proposal
Structural Issues in early 2006. The draft was later unilaterally amended
and watered down by the Minister of Labour, and has
Recent Developments not yet been submitted to Parliament for approval.
400
In order to promote and diversify foreign Following the agreement reached in November
investment, the authorities are pursuing the 2005 with Portugal, the government paid a first
development of special or “Rapid Development Zones” instalment of $250 million to acquire 67 per cent of
(RDZ) in the Niassa province, Nacala district, the Cahora Bassa Hydroelectric (HCB) plant, raising
Mozambique Island, Ibo Island, and the Zambezi its stake in the company to 85 per cent. The government
Valley. Investments in these zones are exempt from is obligated to remit an additional $700 million, which
import duties on certain goods and from real property threatens to increase the country’s foreign debt
transfer taxes, and are granted an investment tax credit substantially. The authorities claim that HCB will raise
of 20 per cent of total investment. Also, a feasibility all the necessary financing itself, thus avoiding an
study for a free trade zone in the Nacala district has been increase in government indebtedness. Another
launched. Despite these incentives, few firms have important development within the energy sector was
settled in the Belulane industrial park in Maputo. the signature of a Memorandum of Understanding
Businesses claim that operating costs are too high. with the Export-Import Bank of China for an
investment of $2.3 billion in the new Mepanda Nkua
The World Bank’s Doing Business report classified Dam and 1 300-megawatt hydro-electric plant on the
Mozambique as having one of the world’s least Zambezi River, which are to be completed in 2011.
conducive environments for business in 2005. The
government is committed to tackling some of the Progress on privatisation has slowed down, since the
shortcomings. The National Assembly has approved remaining state-owned enterprises are mostly public
major revisions to the outdated commercial code. In utilities. In 2006 the Tanzanian firm METL bought
the light of the new code and of complementary Texmoque, a large state-owned textile factory in
legislation, the procedures for company registration Nampula which had ceased operations in 1994. METL
have been simplified, so that the time required for has promised to invest $20 million in new equipment
registration has fallen from 90 days to only a few days. and resume production in 2007.

Mozambique
The government has pledged $500 million to (FIPAG) owns the infrastructure in urban areas that is
improve infrastructure, and especially to upgrade the either managed or leased by private operators. For all
port of Maputo by 2008. A specialised sugar terminal other urban areas, as well as for rural areas, DNA retains
was opened in September 2006, and this is expected to full control of water systems.
double the sugar exports originating in the region being
trans-shipped through Maputo. Construction of the Data on the population’s access to water is unreliable
Zambezi Bridge, linking the north and south of the and out of date1. Current official figures report both
country and budgeted at around $14.4 million, started urban and rural water-coverage rates of about 40 per
in 2006, and should be completed by the end of 2009. cent. According to the latest household survey, however,
The South African shipping company Grindrod has rural water access is only 27 per cent, while urban
taken a 12.2 per cent share in the Maputo Port water access is much higher, at 64 per cent. The MDG
Development Company, and has announced that it target is to reach 78 per cent by 2015 in urban areas
will invest up to $25 million to upgrade the Matola Coal and 56 per cent in rural areas. Also, according to
Terminal’s capacity from 1.7 to 6 million tons per year. government estimates, the proportion of the population
with sanitation is about 35 per cent in urban areas and
Access to Drinking Water and Sanitation 33 per cent in rural areas. The MDG target is set at
80 per cent and 50 per cent access for urban and rural
Water-resource management is extremely important sanitation, respectively.
in Mozambique, in the light of the country’s
vulnerability to natural disasters (drought and floods), Despite the progress that has been registered over
and of its dependence on neighbouring up-river the past ten years in encouraging and regulating private
countries for more than 50 per cent of its surface water. participation in urban water-supply, achieving the 401
Some 14 million Mozambicans – nearly 75 per cent MDG targets remains a challenge. At present, budget
of the total population – rely on groundwater supply. execution in the water sector is less than 50 per cent.
Wells have an average depth of 50 metres, so allowing According to the UNDP Human Development Report,
the use of hand pumps. government financing of water-supply and sanitation
will have to increase to $7 million per year (from its
With the approval of the Water Law in 1991, the current $2 million level) if the targets set for 2015 in
National Directorate of Water (DNA) within the MDG Number 7 are to be met. Effective water
Ministry of Public Works and Housing (MOPH) was management also requires capacity building at the local
given the central role in water management. Following level, and more predictable financing from donors and
the publication of the National Water Policy in 1995, the government. The accumulation of debts to
responsibility for implementation resides with a number construction contractors which has already been
of semi-autonomous regional and sectoral bodies. mentioned is delaying the realisation of some of the
major projects in the sector.
Over the last ten years, major progress has been made
in water management. The 1995 Water Policy The vast majority of foreign aid to rural water and
established the principle of delegated management, sanitation is channelled through project financing.
creating the basis for private-sector participation in Only one donor currently provides general budget
urban utilities. Under this framework, two new support to water, but donors and the government are
institutions were created: the Water Regulatory Council working towards more harmonised support to the
(CRA) is responsible for economic and other regulation sector by improving planning, monitoring, reporting,
of water systems that are under delegated management, auditing, and procurement procedures. The co-
while the Investment and Assets Fund for Water Supply ordinating mechanism in the sector features monthly
1. The quality of data on water access is expected to improve with the new census to be carried out in 2007.

Mozambique
Consolidation of the Delegated Management Framework (DMF):

increases in connections, coverage, and water availability
The key reason for Mozambique’s success in attracting investment into water systems has been the
strategy of delegating operations to the private sector, coupled with economic regulation by the Water
Regulatory Council, which balances consumer and commercial interests. In 1999, the government awarded
a 15-year lease contract for Maputo and a 5-year management contract for Beira, Quelimane, Nampula,
and Pemba to the private company Águas de Moçambique (ADM), whose major shareholder is Águas de
Portugal. Overall, ADM operates reasonably well and will have to concentrate efforts to reduce non-revenue
water and improve customer services.
In 2004, as a result of noticeable improvements in water management in these five cities, the government
decided to expand the delegated management framework to southern cities. The water-supply systems of
Inhambane, Maxixe, XaiXai, and Chokwe were integrated and delegated to the Dutch company Vitens. In
2006, a further expansion of delegated management contracts took place in the central region.
Donors in 1999 secured to FIPAG funds in the order of 115 million dollars for financing expansion
and maintenance of the water supply network. Funds from investments have risen since then to 175 million
dollars in 2004 and are currently at 365 million dollars. Further investments are under negotiations with
the World Bank.
402
Increased investment has led to a significant improvement in the coverage, reliability of supply, and water
quality in the five cities monitored (Maputo, Beira, Quelimane, Nampula and Pemba). Daily water availability
has risen from about 10 hours in 2000 to 16.5 hours in 2006 – which is, however, still below the African
average of 17 hours.
In 2007, connections are forecast to increase to about 122 000 in the five cities (about 34 per cent higher
than in 2000), which translates into 645 000 people covered. Despite improvements, water losses remain
a major problem, and are on an upward trend. In the five cities, the average loss is over 50 per cent, well
above the African average of 39 per cent. This poor performance is attributable to physical losses in the
distribution network and illegal connections and commercial losses associated to poor metering. Rehabilitation
works are under way in all cities but tangible results are yet to be seen. In the cities of Beira, Quelimane,
and Nampula the replacement rate of old pumps is less than 50 per cent.
meetings of a Water Working Group of donors and Moçambique (Liberation Front of Mozambique –
government representatives. FRELIMO) in power. The party has had an
uninterrupted hold on power for 30 years, during 18
of which Guebuza’s predecessor, Joachim Chissano,
Political Context and Human held power.
Resources Development
Although President Guebuza heralded the fight
The 2004 presidential and legislative elections – the against corruption as a major goal of his mandate, to
third to take place since the end of the civil war in the point that in the new FRELIMO constitution it
1992 – brought Armando Emílio Guebuza to the is a party-member duty to fight corruption, not a
presidency and maintained the Frente de Libertação de single major corruption case has been brought to

Mozambique
court. The 2006 mid-year joint review between the 34 per cent) and 27.2 per cent for girls (against a target
government and donors highlighted the absence of of 28 per cent).
progress in implementing the government’s Anti-
Corruption Strategy. Various reports on governance Education accounts for 22 per cent of the
released in 2006 also pointed to alarming levels of government’s expenditure. Thanks to the proper
corruption, lack of accountability, and the deficiencies implementation of e-SISTAFE, the expenditure execution
of the justice system. The delays in prosecuting the two rate improved to 46.6 per cent in 2006. Nevertheless,
high-profile murders associated with the Banco Austral the current expenditure execution rate, excluding salaries,
corruption case are a major source of concern for was only 38 per cent, and the investment expenditure
donors and civil-society organisations. A forensic audit was a meagre 22.6 per cent, due to delays in disbursements
for the Banco Austral case was completed, but its from the central to the local level.
findings have not been disclosed. The government has
agreed to set up a high-level working group that will In order to secure a more predictable flow of funds
include two donor representatives and representatives and increase foreign assistance for education, in early
from the Ministries of Finance and Justice, to move 2006 the Ministry of Education (MINED) and donors
the case forward. signed a Memorandum of Understanding on the Fundo
de Apoio ao Sector da Educação (Education Sector
Provincial elections are scheduled for 2007, to be Pool Fund – FASE). The FASE ‘pooled fund’ is financed
followed by municipal elections in 2008, and by several bilateral agencies supporting the education
presidential and parliamentary elections in 2009. The sector, and is managed by the MINED at national and
Parliament passed a bill to set up directly elected provincial levels. The objective of the FASE is to finance
Provincial Assemblies, whose role will be to approve a portion of the MINED’s priorities as presented in the 403
the programmes of the provincial governments and Education Sector Strategic Plans (1999-2003 and 2004-
monitor their implementation. Independent groups 08). In addition, donors and the government signed
of citizens (and not only registered political parties, as an agreement for the funding of the Vocational
is the case for parliamentary elections) may also propose Education Reform Programme (PIREP). According
candidates to stand for provincial elections. to the PARPA II, the funds allocated to the education
sector are expected to grow by 6.5 per cent in real
FRELIMO’s Ninth Congress did not produce terms per year over the period 2007-09, with an
dramatic changes. It confirmed President Guebuza’s emphasis on the recruitment of new teachers and the
leadership and the popularity of the Prime Minister construction of new schools.
within the Party.
The health sector registered moderate progress in
While literacy rates remain very low, educational terms of expansion and access to services, as well as a
and health indicators have improved dramatically in slight improvement in budget execution. (In the first
recent years. However, a slowdown or even a reversal semester of 2006, global execution was 37.8 per cent,
of these positive trends is expected, due to the impact compared to 32.9 per cent in 2005.) Vaccination
of HIV/AIDS. coverage and physician consultations per capita were
on target for 2006 – vaccination of infants 0-11 months
According to the mid-2006 government-donors’ was 92 per cent (annual target 2006: 95 per cent), and
joint review, primary-school enrolment has substantially there were 1.2 consultations per inhabitant (annual
improved. The net schooling rate for primary education target 2006: 0.94).
(EP) in 2006 was 90.3 per cent overall (against a target
of 85 per cent) and 87.5 per cent for girls (against a Despite these improvements, the Mozambican
target of 82 per cent). The gross EP completion rate health sector is faced with serious challenges. Health
was 33.7 per cent for both sexes (against a target of indicators are generally lower than in neighbouring

Mozambique
South Africa, Malawi, Tanzania, Zambia, and Swaziland. the Mozambican Ministry of Health (MISAU), and are
It is estimated that only half of the population has used for the implementation of the Mozambican
access to basic health services. The last available figures National Health Sector Strategic Plan.
show that 15 per cent of all children die before reaching
the age of five years, the most common cause of death The HIV/AIDS pandemic is the biggest challenge
being malaria. According to the World Health for the country. The HIV/AIDS prevalence is 16.2 per
Organization (WHO), 1 out of 16 women die as a result cent, the tenth-highest in the world, and the country
of childbirth. Significant disparities in the availability has one of the fastest-growing rates, with an estimated
and quality of health services are observed amongst 500 new HIV infections each day. Some provincial
provinces, the situation being particularly poor in rural prevalence-rates exceed 20 per cent, with a peak of
areas. Even though the number of staff has increased about 30 per cent along the Beira Corridor.
over the last years, the number of health professionals
per inhabitant is among the lowest in the world. About Increased political commitment, rising financial
12.7 per cent of government expenditures are devoted resources from the National AIDS Council (CNCS),
to health, and according to the PARPA II, the allocation and better harmonisation and alignment of donor-
to health is expected to grow by 3-4 per cent per annum supported projects provide some hope for progress.
in real terms over 2006-09, mainly for new rural Nevertheless, the national response is insufficient due
hospitals, health centres, and training institutions for to inadequate human resources and lack of co-
primary health-care workers. ordination. To date, only 10 per cent of people in need
of ART receive treatment and less than 5 per cent of
Donors are increasingly funding health through a pregnant women living with HIV or AIDS receive the
404 Sector-Wide Approach (SWAp). Most of the funds are full course of prophylaxis for the prevention of mother-
channelled through three common funds: a general to-child transmission. It is widely acknowledged that
health fund, a common fund for health services in the the role of CNCS as the co-ordinating authority for
provinces, and a common fund for medicines and HIV/AIDS must be strengthened.
medical equipment; these funds are administered by

Namibia
Windhoek
key figures
Namibia
0 150 km
N AMIBIA HAS EXPERIENCED SEVERAL YEARS of moderate HIV/AIDS epidemic. HIV/AIDS prevalence averages
economic growth, due mainly to strong performance 19.7 per cent (2004) and has contributed to reducing
in diamond production and prudent macroeconomic life expectancy at birth from 53.9 years in 1970-75 to
policies. Growth averaged 4.5 per cent a year over the 48.6 years in 2000-05.
period 2000-05, and is expected to reach 4.8 per cent
in 2006 and 2007 and 4.9 per cent in 2008. However, The most damaging
Alongside a stable and open
the Namibian economy is poorly diversified, relying structural impact of apartheid
political and economic
heavily on extractive mining for export earnings and fiscal in Namibia was to exclude the
environment exist high rates
revenue, and is thus exposed to large and unpredictable majority of the people from
of rural poverty, large income
fluctuations in commodity prices. the productive economy, and
disparities, and a serious
this has stifled
HIV/AIDS epidemic.
Although Namibia has the continent’s fifth-highest entrepreneurship and
per capita income and the eleventh-highest Human professional development among the black population.
Development Index, it faces daunting social challenges, Affirmative action and Black Economic Empowerment
including high rates of rural poverty (of about 42 per (BEE) programmes have been implemented in an
cent), large income disparities (the Gini coefficient of attempt to kick-start a process of accelerated
0.6 is among the worst in the world), and a serious transformation by providing previously disadvantaged 407

■ Namibia - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Namibia - Real GDP Growth (%)
8 10000
9000
7
8000
6
7000
5
6000
4 5000
4000
3
3000
2
2000
1
1000
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and Central Bureau of Statistics data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/741302441458

Namibia
groups with the opportunities necessary for them to of value added. Business confidence is strong, as shown
participate in the country’s economic development. by the consecutive records reached by the IJG1 Business
Early indications, unfortunately, are disappointing. Climate Index produced monthly by the Windhoek-
Also, it has been alleged that most opportunities – for based Institute for Public Policy Research (IPPR),
instance in fishing concessions – have benefited only which in September 2006 rose by 2.6 points to
a small number of well-connected people. In the 139.5 points.
construction industry, where preferential procurement
practices could potentially benefit black contractors, The mining industry accounts for some 9 per cent
the superior competitiveness of Chinese companies of GDP, and is dominated by diamond extraction,
is an additional constraint. This situation is exacerbated which accounts for roughly 8 per cent of GDP and has
by skills shortages. Ten per cent of all positions are made Namibia the world’s seventh-largest producer by
either occupied by people who lack the right skills or value in 2005. Cutting and polishing of diamonds also
else remain unfilled, while the unemployment rate is contribute to economic activity. NamDeb, a 50/50
36.7 per cent (in the broad sense, according to the joint venture between the Government of the Republic
Labour Force Survey 2004). Despite the high share of Namibia (GRN) and De Beers, is the largest diamond
of expenditure on education, the quality of education firm. Various non-diamond operations include:
is low. Ongopolo (which re-opened around 2000 under new
management); Rosh Pinah; Skorpion (2003/04); and
The stable and open political environment, sound UraMine (2006), which started production recently.
macroeconomic policies, and favourable growth Rössing is expected to operate at full capacity in the
momentum combine to create a window of opportunity next couple of years, while Langer Heinrich will start
408 for undertaking the structural reforms necessary to production soon; a third uranium deposit was also
spread the benefits of growth more widely. This will launched at the beginning of 2007. Petroleum
certainly be necessary if recent and forecast short-term exploration licenses were issued in August 2005 to
GDP growth rates are to be raised in line with the BHP Billiton, Hunt Oil and Neptune.
ambitious targets set in Namibia’s Vision 2030.
Although the share of mining in GDP has declined
from the 1990 high of 20 per cent, it still accounts for
Recent Economic Developments 45 per cent of foreign-exchange earnings and roughly
a third of fixed capital formation. Expenditures on
Namibia’s economy is small and closely linked to mineral exploration reached N$477 million in 2005,
that of South Africa. GDP growth has exhibited its highest level in ten years and 50 per cent higher in
considerable fluctuations, having averaged 3.1 per cent real terms than in 1995. Nonetheless, direct employment
over 1998-2001, then accelerating to 5.6 per cent in has halved since independence (to 7 400 people),
2002-04, and slowing to 4.6 per cent in 2005-06. reflecting the switch from labour-intensive onshore
Growth is forecast to average about 4.8 per cent and diamond extraction to capital-intensive marine
4.9 per cent in 2007 and 2008, respectively. The recent operations, which represented 52 per cent of 2005
acceleration of growth was made possible by increased production. Tax revenue from mining has been highly
global demand for minerals, reflected in high variable and difficult to forecast. While tax revenue
international prices for key export commodities such from diamonds has never fallen below 6 per cent of total
as diamonds, uranium, zinc, copper and gold. The tax revenue and averages approximately 8 per cent of
economic structure has remained fairly stable over the total revenue, non-diamond mining has only accounted
past decade, with services contributing some 55 per cent for an annual average of 1 per cent of tax revenue over
1. IJG (Irwin, Jacobs, Greene) Securities (Pty) Ltd is one of Namibia's financial service providers.

Namibia

Other services
Agriculture, forestry and fishing
2.4% 11.9%
Government services
20.6% Mining and quarrying
9.3%
11.4% Manufacturing
Real estate and business services 10.2%
4.5% 4.2%
3.9% Electricity, gas and water
Financial services 8% 11.2%
2.4% Construction
Transport and communications
Restaurants, bars and hotels
Source: Authors’ estimates based on Central Bureau of Statistics data.
http://dx.doi.org/10.1787/658621448877
the past ten years. This mainly reflects a tax formula Manufacturing, which accounts for 11 per cent of
applied in 1992, whereby the higher the rate of profit, GDP, recorded negative growth in 2005/06, owing to
the higher the rate of tax. However, this formula was the poor performance of fish processing. Over the past
open to abuse, and it failed to deliver a significant few years, the authorities have been trying to develop
amount of tax revenue to the treasury. Even after the the manufacturing sector. The opening of the Ramatex
introduction of a new flat tax rate in 2000, the non- apparel factory in Windhoek in 2003 was expected to
diamond sector’s contribution to fiscal revenues has attract new international investments to the Export
remained relatively modest. Processing Zones (EPZ). Namibia, however, has suffered
from the phasing-out of the Multi-Fibre Agreement and 409
Diamond production rose by 50 per cent on a year- the number of new jobs for Namibians in the textile
on-year basis in the third quarter of 2006, following an industry has been far below expectations. Other large
expansion of 28.1 per cent in the second quarter of the industrial firms, such as dairies, are also suffering from
year. Although receipts for diamond exports declined the high value of the currency and competition from
between the first and second quarter of 2006, they have South Africa and China.
continued to represent the largest item in total
merchandise export earnings, accounting for about The share of agriculture in GDP has fallen
36 per cent. Offshore diamond production in 2006 is continually since independence, and currently hovers
estimated to have reached a record one million carats, around 6.8 per cent. This sector is dominated by meat
thanks to the use of advanced marine prospecting and products such as beef, mutton and goat meat. Thanks
mining technology, whereas the relative share of onshore to record rainfall experienced in 2005, agriculture grew
production is declining. Overall, diamond production by 10 per cent. Good rainfall continued in 2006, but
expanded to more than two million carats in 2006 for nevertheless, a decline in the number of livestock
the first time and is forecast to increase further in 2007. marketed during the year resulted in a contraction of
NamDeb is promising ten million carats by 2010 and about 6 per cent in the first three-quarters of 2006.
so new production records should be reached in the Farmers had to postpone the selling of some of their
coming years. In January 2007, De Beers and the livestock for purposes of restocking after the good
Government of Namibia also concluded negotiations rainfall, despite high meat prices.
started in November 2005 on the renewal of the five-
year contract. Namibia succeeded in boosting its local Despite almost unlimited farmland, the country’s
cutting and polishing industry by increasing the share geological and climatic conditions make it difficult to
of NamDeb production destined for local sales; however, generate enough income for the 1.2 million Namibians
De Beers will maintain supply control over the so-called who rely on farming for their livelihood and who are
“specials”, i.e. diamonds of 10.8 carats and bigger. mostly living in communal areas. Food demand exceeds

Namibia
supply, with imports of staple food from South Africa strong cyclical pattern since it is influenced by weather
and Zambia filling the gap. Poor marketing, the small conditions, energy prices, and the exchange rate. After
size of the domestic market, and the inability to add two consecutive years of contraction, the sector recovered
processing value and penetrate foreign markets all act gradually in 2005/06, although a four-week closed
as additional constraints on agricultural development. season for hake was imposed in October 2006 for the
Meat remains the major export product. Other export- first time, and a closed area was also introduced,
oriented farming products have developed recently in prohibiting vessels from fishing in depths of less than
the south, especially grapes, pearl millet/mahangu and 200 metres. These actions followed from surveys that
horticultural products. revealed mixed results. Most fish caught in Namibia
are exported to Spain, although efforts are now under
Fishing is also a strong contributor to GDP, way to find new export markets in Asia, especially for
accounting for about 5.6 per cent, but it exhibits a species such as abalone.

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 7.7 7.6 8.0 -5.0 5.0
Private 18.1 18.0 7.0 10.0 10.0
410 Consumption 87.3 81.1 4.2 0.0 3.1

Public 31.5 29.4 7.0 -1.3 5.0
Private 55.8 51.7 2.7 0.7 2.2

Exports 45.0 35.1 7.5 10.0 6.2
Imports -58.0 -41.8 7.4 1.8 5.1
Source: Central Bureau of Statistics data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/488560331871
Among services, tourism stands out in terms of Growth in Namibia has been driven by exports
contribution to export earnings, although the and private investment in the mineral sector. In 2005,
contribution of government services in much higher. for the third year running, mining investment at
Tourism (represented by hotels and restaurants) N$477 million outstripped government investment
contributes 3.7 per cent of GDP and 4.7 per cent of by a wide margin. Over the period 2006-08, other
total employment, although the indirect contribution significant investments are expected to boost growth,
(as recorded by the Tourism Satellite Accounts) is including: the continuous introduction of new
estimated to be equivalent to 16 per cent of GDP and technologies for mining diamonds; the development
17.7 per cent of total employment. Tourism is of new uranium mines; and the development of the
estimated to have grown by 21 per cent in the first Kudu Gas Field and subsequent construction of the gas-
three-quarters of 2006, with visitor-arrival growth fired power plant. In tandem with increased investment,
being positively affected by the worldwide publicity imports of capital goods are expected to grow, although
generated by the presence in the country of well- their increase will be more than offset by record diamond
known Hollywood stars. The real estate market is and uranium exports. After increasing substantially in
also showing moderate growth, which, combined 2006, government consumption and investments are
with new infrastructure investment, is providing expected to contract slightly in 2007, reflecting the
support to the construction industry. tighter budgetary stance adopted in order to compensate

Namibia
for the anticipated fall in international taxes (Southern On balance, the government has pursued a prudent
African Customs Union revenue – SACU revenue). It fiscal policy, reducing the deficit from 7.5 per cent of
is also expected that there will be little growth in private GDP in 2003/04 and 3.6 per cent of GDP in 2004/05,
consumption, mainly due to the weak performance of to 1.1 per cent in 2005/06. This improvement was due
traditional agriculture. to cuts in government recurrent expenditures on goods
and services, a drop in capital expenditure and efforts
to increase revenue collection and broaden the tax base.
Macroeconomic Policies In 2006/07, the budget is expected to exhibit a surplus,
of 2.2 per cent of GDP, for the first time since
Fiscal Policy independence. Nevertheless, a closer look shows that the
improvement was due more to higher revenue than to
Vision 2030 is meant to define the national continued expenditure restraint. An unexpected windfall
development strategy, which will then be translated of SACU receipts, which accounted for 40 per cent of
into a series of five-year National Development Plans total revenue and grants, offset the growth in the public-
(NDPs). The Medium-Term Expenditure Framework sector wage bill which reflects the continuous growth
(MTEF) sets the budgetary priorities for government in government personnel. Namibia’s growing pool of civil
spending and ought to be in line with the NDP. servants makes up 4.3 per cent of the population and
However, the coherence among these three documents their salaries represent more than 40 per cent of total
is weak. The Vision 2030 emphasises industrial expenditures and account for more than 14 per cent of
development; while the NDP focuses more on pro-poor GDP, which is well above the average of African countries.
growth. The MTEF is based on three pillars: An additional boost to the government’s revenue came
a) consolidating macroeconomic stability through from receipts (N$648 million) from the partial 411
prudent fiscal policies and maintaining a credible peg privatisation of the mobile phone company, Mobile
to the South African rand; b) promoting pro-poor Telecommunications (MTC).
growth by stimulating consumption and promoting
industrial diversification; and c) further combating The volatility associated with SACU receipts means
poverty by injecting substantial resources into health that the government needs to diversify its sources of
and education, as well as by grant-based transfers (such revenue and undertake substantial efforts to improve
as non-contributory social pensions). sustainable revenue collection. The government also

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 31.9 25.0 28.0 27.6 32.6 26.7 26.1
Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest 2.6 2.5 2.7 2.7 2.9 3.0 3.0
Primary balance -1.4 -5.0 -0.9 1.6 5.1 0.7 0.6

Overall balance -4.0 -7.5 -3.6 -1.1 2.2 -2.2 -2.3
Source: Ministry of Finance data; estimates (e) and projections (p) based on authors’ calculations.
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Namibia
needs to re-orient spending away from wages and projected to result in deficits of 2.2 per cent and 2.3 per
subsidies towards priority sectors, namely, health, cent, respectively. This is mainly explained by an
education and infrastructure. To this end, in the 2006 expected fall in SACU receipts by more than 6 per
Article IV consultation the IMF recommended that the cent of GDP.
authorities enhance tax administration and revise the
structure, quality and remuneration of the civil service. The reduction of the fiscal deficit over the past few
years has led to stabilisation of the public debt at about
In the MTEF for 2006/07-2008/09, the government 33 per cent of GDP. The authorities have fixed an
has introduced a number of reforms to strengthen tax ambitious target of reducing the debt/GDP ratio from
administration and improve revenue collection, including 33 per cent to 25 per cent by the end of the decade.
a system of rewards and penalties for line ministries to
encourage them to make greater efforts to collect revenues Monetary Policy
for the services they deliver. Another important measure
includes the clamping-down on tax evaders through Namibia is a member of the Common Monetary
targeted forensic audits. On the expenditure side, the Area (CMA), which also includes South Africa, Lesotho
authorities have put in place an Integrated Financial and Swaziland. Like other small CMA members,
Management System which will improve the Namibia’s monetary policy is determined by the peg
management of all the transactions between the Ministry to the South African rand. Each CMA member has its
of Finance and line ministries. own Central Bank and maintains responsibility for
foreign exchange transactions within the territories. A
Regarding sectoral allocations, education will receive bilateral agreement with South Africa requires Namibia
412 about 26 per cent of the total operational budget for to fully back its currency with foreign exchange reserves.
the MTEF period, of which personnel expenses account This peg also links Namibia to South Africa’s inflation-
for two-thirds and health will receive 10 per cent (in targeting framework, requiring the two inflation rates
line with the target set by African Union – AU – to converge to the South African Reserve Bank range
Ministers of Health), constituting an increase of 23 per of 3 to 6 per cent.
cent compared to the 2006/07 budget. Most of the
funds will be channelled to improve antiretroviral Nevertheless, since mid-2005, inflation has been
treatment for victims of AIDS/HIV and to hire 105 rising. The annual rate for December 2006 was about
expatriate nurses to work in Namibia in 2007 and 6.1 per cent, the highest not only for the year, but
2008. Financial transactions which include transfers, since August 2003 (6.7 per cent) compared to a low
such as social pensions, contributions to Medical Aid rate of 0.9 per cent in May 2005. The increase is mainly
Funds and subsidies to loss-making State-Owned due to increases in transport prices until the end of the
Enterprises (SOEs), will remain the second most- second quarter (reflecting high international crude oil
important spending category, accounting for 14 per cent prices), food inflation, strong domestic demand and a
of total budget. To reduce the SOEs’ drain on the state weaker exchange rate. Imports account for 80 per cent
budget, the government has undertaken to tighten the of the CPI (Consumer Price Index) basket. Mirroring
rules under which subsidies are disbursed. Defence development in the CPIX (Consumer Price Index
will continue to receive substantial additional resources excluding interest rates on mortgage bonds)of South
in the budget, with its overall allocation rising to 9 per Africa, which is the major source of Namibia’s imports,
cent of total spending, representing the fourth-largest inflation averaged 5.1 per cent for the year, compared
category after education, finance and health. to 2.2 per cent in 2005 and is expected to remain
around this level in 2007 and 2008.
Despite the government’s efforts to improve revenue
collection, reduce non-priority spending and contain To counteract the build-up of inflationary pressures,
wage growth, the 2007/08 and 2008/09 budgets are the Monetary Policy Management Committee of the

Namibia
Bank of Namibia increased the bank rate by 150 basis Institutions Supervisory Authority Act which should
points, to 8.5 per cent, from June to October 2006. encourage the development of investment vehicles
This tightening was in line with similar action taken offering investors the same returns as those expected
by the South African Reserve Bank (SARB). Owing to outside the country.
continued inflationary pressure, the Bank of Namibia
increased the Bank rate by another 50 basis points to External Position
9 in December 2006, following an identical rise in the
discount rate by the SARB. At this level, the intervention About 80 per cent of total imports come from or
policy rate became the highest since October 2003, through South Africa, which absorbs only 30 per cent
when the rate was 8.25 per cent. of exports. The European Union (EU) represents the
main export market, in particular the United Kingdom
As sentiment towards emerging markets deteriorated (diamonds) and Spain (as end and transit destinations
in May/June 2006, and as concerns mounted over for fish). Namibia is also actively taking advantage of
South Africa’s large current-account deficit, the currency the African Growth and Opportunity Act (AGOA), with
depreciated by about 20 per cent, reaching a low of several apparel manufacturers from Asia – actually
N$7.91 to the US$ in early October 2006. Softer forming one company with one or two subsidiaries
prices for commodities such as gold and platinum have (Ramatex) – which are investing in assembly facilities;
also helped to push the currency lower. Although a at full production, these facilities are expected to generate
lower exchange rate means higher costs for imports annual exports of goods valued at over $100 million.
from outside the CMA, it may improve the prospects AGOA has created over 6 000 jobs and has led to
for non-traditional exports and increase the profits of investment in infrastructure, especially in support of
traditional exports. Towards the end of the year 2006, the textile and garment industry. The United States also 413
the currency appreciated again and hovered around represents an important source of heavy equipment
N$7.10 to the US$ and N$9.3 to the euro. and machinery imports.
Namibia is characterised by a high private-savings Economic Partnership Agreement (EPA)

rate, mainly reflecting pension contributions from negotiations with Southern African Development
public-sector employees. In fact, the assets of pension Community (SADC) countries, including Angola,
funds and insurance companies are equal to GDP. The Botswana, Lesotho, Mozambique, Namibia, Swaziland
overwhelming bulk of these funds have been channelled and Tanzania, were opened in July 2004. Botswana
to South Africa’s financial market due to the lack of was appointed to co-ordinate the overall efforts of the
investment opportunities in Namibia. In order to retain SADC EPA configuration and to prepare negotiating
more of these funds in Namibia, the government is positions, while each SADC EPA member state has been
drafting an amendment to the Namibian Financial assigned a negotiation issue or issues to co-ordinate.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -8.4 -10.3 -5.0 -9.4 -7.3 -5.3 -4.4

Services -4.6 3.8 2.4 2.7 2.3 2.4 2.2
Factor income 3.1 1.3 1.2 1.2 1.0 1.1 1.2
Current account balance 2.8 5.1 10.2 5.7 10.0 10.3 9.1
Source: IMF and Bank of Namibia data; estimates (e) and projections (p) based on authors’ calculations.
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Namibia
Namibia is in charge of trade facilitation and are characterised by a small deficit in goods and a small
development co-operation. In March 2006, the SADC surplus in services. Nevertheless, since 2006, booming
EPA group presented this adopted framework document exports in diamonds, gold, zinc and copper – reflecting
to the European Commission (EC), setting out the higher international prices – have narrowed the trade
principles, objectives and key elements that define their deficit. In addition, a surge in SACU receipts has
new approach to the EPA negotiations. resulted in a strong improvement in the current-account
surplus. The growth in mineral exports is expected to
The Southern African Customs Union (SACU) continue in 2007 and 2008, further improving the
has recently engaged in a round of Free Trade Agreement trade balance. The current account is also expected to
(FTA) negotiations with other countries and regional benefit from increased tourism revenue and higher
blocs. Agreements concluded include those with the receipts from investment abroad.
European Free Trade Association (EFTA) and the
Southern Common Market (MERCOSUR); these now Foreign direct investment (FDI) is heavily biased
await incorporation into the national laws of the towards the mining sector, which attracted 65 per
individual countries concerned. The SACU-United cent of major projects in the 2003-06 period. In
States FTA, however, has been put on hold due to manufacturing, most Asian FDI has been short-lived.
disagreements over several issues, including “new issues” Rhino Garments shut down in 2005, while Ramatex
such as investment, government procurement and has used the threat of doing the same to win new
competition. This agreement will now be replaced by concessions from the trade unions and the government
a less comprehensive version known as the Trade and (in particular in the area of environment controls).
Investment Co-operation Agreement (TICA). A revision of the investment legislation is currently
414 Agreements with India and China are imminent. under way, in order to define better the role of tax
Namibia’s transactions with the rest of the world incentives – which, in the case of Ramatex, included

30
25
20
15
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
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Namibia
a reduced corporate rate and a VAT exemption for government will continue issuing bonds on the domestic
equipment purchase – and also to integrate trade, market to finance its budget.
FDI and EPZ promotion. This process is proceeding
in tandem with the discussion of the second Investor
Roadmap that has identified the major hurdles to Structural Issues
FDI in Namibia. The recently established Agricultural
Trade Forum should also play a key role in raising Recent Developments
awareness and attracting investment towards the
production and export of products in which the Due to its small population of about 2 million, the
country has a comparative advantage, such as cotton legacy of infant-industry protection, and a history of
seed, hides, karakul pelts, raisins, beer, fish, cattle racially-tinted colonialism, the economy of Namibia
meat and wool. is characterised by low competition, high regulation,
and diffuse rent-seeking. The government has embarked
Namibia’s status as a middle-income country does on a process of regulatory reform in order to infuse
not facilitate access to concessional finance. In fact, much-needed competition, but the results achieved so
donors’ support is declining. External grants through far have been disappointing.
the budget dropped from 1.5 per cent of the revenue
in 2005/06 to 0.6 per cent in 2006/07. Those funds State-owned enterprises (SOEs) play a dominant
are exclusively from the EU and are destined for rural role in the economy. According to the latest available
water investments and rural roads. The Dutch and annual reports covering fiscal years 2003/04 and
British development co-operation agencies ceased their 2004/05, the ten largest SOEs had a total turnover
operations in 2006. Interestingly, though, Namibia equal to N$4 357 million and recorded total profits 415
was deemed eligible for United States Millennium equal to N$46 million, compared to GDP of N$38 400
Challenge Account assistance in the 2006 and 2007 million in 2005. The list includes eight profit-making
selection rounds, under the lower middle-income SOEs (Telecom Namibia, NamPower, TransNamib,
category. The country is expected to receive about the Roads Contractor Company, NamWater, Namport,
$450 million over the next five years to finance projects Nampost and Namibia Airports Company) and two
in the following areas: education, livestock, tourism, loss-making ones (Air Namibia and Namibia Wildlife
green scheme, indigenous natural products and roads. Resorts). The return on assets ratios are very healthy
There are concerns in the donor community about the for non-regulated monopolies (such as the telecom
effective absorption capacity of such a significant flow and postal services providers), while the two loss-making
of resources, and many fear that Millennium Challenge SOEs have negative net asset values recorded in their
Account (MCA) aid could crowd out the activity of books. Only NamPower has an international credit
existing donors. rating.
In December 2005 Fitch Ratings awarded Namibia So far, the government has taken a very cautious
an investment-grade rating of BBB- for long-term approach towards SOE reform. No privatisation has
foreign-currency risk, F2 for short-term foreign-currency been concluded so far and in fact the term itself has
risk, and BBB for long-term domestic-currency risk, not been used in the Budget speech since 1999. Air
while the overall country rating was set at A-. This Namibia and the state-owned television and publishing
reflects an improvement in the perceived enterprises (which includes NamZim, the joint venture
creditworthiness of the government, since prices at with the Government of Zimbabwe which publishes
which government securities were previously traded the Sunday Times), received sizeable budgetary support
indicated a far less favourable assessment of risk. Despite in 2006/07 (N$153 million and N$78 million,
the possibilities of tapping international capital markets respectively), while NamPower received a
offered by the favourable sovereign credit rating, the N$250 million transfer to strengthen its balance sheet

Namibia
in advance of the massive N$7 billion Kudu gas-to- include very generous provisions for annual holidays
power project. In order to improve SOE governance, and other special leaves (for medical and compassionate
an ad hoc Act was finally gazetted in September 2006, reasons). Cognizant of these problems, government
although it remains unclear whether operational tabled new legislation to Parliament in late 2006 which
responsibilities will rest with the newly established includes transferring dismissal procedures from courts
Central Governance Agency or an SOE Governance to tripartite arbitration tribunals.
Council which will act as the representative of the
state and report to the cabinet committee. As in neighbouring South Africa, affirmative action
to increase the participation of Historically
Regulatory reform has also been proceeding very Disadvantaged Individuals (HDIs) has been introduced
slowly. For public utilities, monopoly provision is still since the late 1990s. The policy of Black Economic
the rule and Namibia does not have independent Empowerment (BEE) places a premium on increasing
regulatory agencies, although a number of separate the participation of HDIs in the equity of Namibian
regulatory commissions has been established in line businesses, and thus, on the transfer of assets, although
ministries such as Mines and Energy, and Information other criteria such as the share of positions filled with
and Broadcasting. In mobile telephony, Namibia HDIs are also included. Black Namibians currently
Telecom has been operating the only company, MTC, account for 25 per cent of all executive directors, 45 per
since 1995, first with Sweden’s Telia as a strategic equity cent of all senior managers, and 78 per cent of all
partner and most recently with Portugal Telecom. A middle managers. BEE was particularly successful in
second mobile telephony license was awarded in 2006 the fishing industry around 2001-02, although it is
and the new operator, Powercom, a joint venture questionable whether local partners contributed much
416 between NamPower and Telenor of Norway, will start in terms of technical support and facilitating access to
operating the Cell One brand in 2007. In December markets. In 2006, in the single largest BEE deal so far,
2006, Telecom Namibia finally launched a high-speed Old Mutual South Africa transferred part of its shares
Internet service, while MTC is expected to launch 3G to its black employees, church groups, and a special trust.
services in 2007. Namibia does have a competition The 2006-09 MTEF includes a target for Namibian
law and policy (the Competition Act was enacted in ownership in the mining sector of up to 33 per cent.
2003), but due to budget and capacity constraints the While efforts to redress the discriminatory legacy of the
Competition Commission has not begun operating. past are to be welcomed, this policy carries the risk of
However, the Commission is definitely on the budget stifling entrepreneurship and perpetuating a culture
list for the 2007 financial year, so it is likely that it will of rent-seeking. A policy mix that improved the terms
start this year. of financing of small and medium-sized enterprises
(SMEs), and assisted micro-finance institutions and
Partly due to the heavy role of the public sector, accompanied their scaling-up – so ultimately easing the
investors’ perception of the investment climate has burden of doing business in Namibia – would carry
deteriorated in recent years, as reflected in Namibia’s much greater potential in terms of BEE.
slipping-down in a number of international
competitiveness rankings. Skills shortages, restrictive Land reform is another policy domain where
labour laws, and shallow financial markets are widely progress has been slow. Fifty-two per cent of land in
mentioned factors. Namibia has a serious deficit in Namibia is held under freehold (commercial) title,
different technical professions, a problem that is while the remaining 48 per cent is communally held.
aggravated by restrictions on work permits and the At independence, the commercial land area, which
haphazard application of existing rules. Moreover, represents 74 per cent of the potentially arable land,
legislation makes labour dismissal very cumbersome and was owned by less than 4 100 people, mainly white
exceedingly long, and this obviously discourages commercial farmers who made up less than 0.2 per cent
employers from hiring new staff. Labour laws also of the total population. To date, access to agricultural

Namibia
land in Namibia for formerly disadvantaged citizens has process; encourage community-driven resettlement;
been facilitated by the state, and by market-assisted and favour farm workers. In addition, the team identified
acquisition schemes based on the willing seller, willing the support services necessary for emerging commercial
buyer principle. The government initiated a National farmers, including pre-settlement orientation courses,
Resettlement Programme (NRP) whereby people were short courses, and other formal training, as well as a
resettled on state-acquired freehold farms. In addition, mentoring system to enhance linkages between farmers
the Agricultural Bank of Namibia has put in place an and service providers.
Affirmative Action Loan Scheme to provide financial
assistance to communal farmers for the procurement Access to Drinking Water and Sanitation
of commercial land.
Namibia is one of Africa’s driest countries, with
Between 1990 and 2005, these two programmes annual rainfall equal to 360 mm and an annual
redistributed 4.5 million hectares (against a target of evaporation of 3 400 mm. The annual amount of water
9.5 million hectares) or 12 per cent of freehold land available is equal to 422.5 million m3 per annum, with
in the country, benefiting some 2 200 families. Since a geographically uneven distribution of resources. In
April 2004, state-led acquisition has been supplemented particular, high-growth agglomerations such as
with expropriation in the public interest. As an initial Windhoek and the coastal towns of Swakopmund and
action, some 25 farms were identified. Since then, the Walvis Bay experience severe water shortfalls that require
negotiations and the legal process have continued, and considerable capital investment to increase supply.
three farms have been acquired. The objective is to Groundwater is the single largest natural source of
redistribute 15 million hectares by 2020. water, accounting for 40 per cent of freshwater. Perennial
rivers and ephemeral rivers each provide roughly 30 per 417
The Namibian government is considering ways of cent of freshwater. Reclaimed water provides about
improving its land-reform programme, which has not 1 per cent of freshwater.
only been slow, but has also had a negative impact on
agricultural production. A Permanent Technical Team According to the World Health Organization
was created during 2003 in order to review the existing (WHO), about 98 per cent of urban population had
legal and policy framework, and the economic, financial, access to improved drinking water in 2004, while 50 per
and environmental sustainability of land reform. cent had access to improved sanitation coverage. In
According to the analysis of the Team released in 2005, rural areas, about 81 per cent were estimated to have
the land reform process lacks transparent and access to improved drinking water. This represented a
quantifiable indicators, and contains no provision for substantial improvement compared to 1990, where
adequate support services. An assessment on the only 42 per cent of people had access. Not much
outcome of the process revealed that emerging progress has been achieved in sanitation, since still only
commercial farmers received little back-up support to 13 per cent of the rural population had access to
enable them to become economically self-sustainable. improved sanitation coverage, compared to 8 per cent
Most farmers cannot survive without a supplementary in 1990. Overall, although progress in sanitation has
income. This is mainly due to skill shortages, been moderate, Namibia is ahead of schedule in meeting
implementing new farming practices, start-up capital the MDG on access to drinking water. From a total of
and breeding stock, access to operating credit, 57 per cent of people having access to drinking water
equipment, and access to information and advice; and in 1990, the percentage increased to 87 per cent in 2004,
also to poorly maintained farm infrastructure. which is ahead of the target of 78 per cent.
The team recommended therefore that the Freshwater supply is provided by four types of
government should: improve the screening and selection agents. Agricultural self-providers are the largest suppliers
of beneficiaries; involve civil society in the reform (45 per cent) and deliverers to end-users (47 per cent).

Namibia
NamWater was set up in 1997 as a commercialised water demand among urban users, but irrigation,
water corporation under the supervision of the Ministry livestock, and mining still enjoy an important subsidy,
of Agriculture, Water and Forestry. It accounts for since depreciation and operating costs are excluded from
40 per cent of all abstraction and delivers 22 per cent the tariff formula. According to a 2006 survey, mining
of all water to municipalities, industries, mines and also appeared to have switched from paying tariffs that
the Directorate of Rural Water Supply. Lower were substantially in excess of cost in 1999, to receiving
government bodies, including municipalities and rural large subsidies in 2001/02. A process started in 2005 to
authorities, account for 12 per cent of supply and update NamWater’s system of cost allocation according
29 per cent of deliveries. Finally, a small (although to different schemes: this may result in a better alignment
increasing) share is provided by mining enterprises. of costs and tariffs, and in a more transparent allocation
of subsidies to different classes of users.
As is the case in most other countries, households
use less than 12 per cent of all water abstracted. Piped An important aspect of water-pricing policy at the
water is the source of drinking water for 99 per cent municipal level is the effective collection of revenue.
of urban households and 58 per cent of rural households. Detailed data on the costs and user charges levied by
However, a significant proportion of households in municipalities are not available. In many cases, local
rural areas draw their drinking water from flowing authorities are not up to date with the processing of
streams/rivers or stagnant sources. Non-revenue water their annual statements. A 2005 survey of a few local
(including administrative, physical infrastructure losses authorities determined that payment levels vary from
and metering errors) accounts for a low share of 40 per cent to 85 per cent of the monthly accounts
NamWater resources, but losses are much higher for processed. A number of towns are in arrears to NamWater
418 most municipalities. Municipalities with non-revenue for their bulk water purchases, due to failure to collect
water of 20 per cent or higher account for 37 per cent payments from local users. In February 2005, the
of municipal water distribution, while in seven towns, outstanding service accounts of local authorities were
non-revenue water exceeds 60 per cent. estimated to represent debts of well over N$400 million.
To fight the problem of outstanding arrears on user
The 2000 National Water Policy White Paper sets accounts, in 2003 some towns started installing pre-
the policy and strategy for water resources management payment water meters. This measure met with widespread
and water services. The White Paper addressed the criticism by civil-society organisations and was plagued
need to separate the roles of water supply, water resources from the beginning by the high incidence of faulty
management and regulatory supervision. The water equipment. An alternative mechanism, consisting of
sector is the responsibility of the Ministry of Agriculture, communal-level water committees that collect money
Water and Forestry, whereas the Ministry of Health and from different households for the use of shared taps and
Social Services is responsible for the sanitation sector. toilet facilities, has proved more successful, although
Enacted in 2004 to replace the outdated Water Act 54 this mechanism is not yet widely used.
of 1956, the new Water Bill established a national
regulatory board, consisting of five members appointed In terms of the affordability of water services, survey
by the Minister of Agriculture, Water and Forestry. data based on water tariffs in 2003/04 and 2004/05
show that low-income families or pensioners with an
Cost-recovery mechanisms have been introduced income of less than N$600/month cannot afford to use
gradually since the mid-1990s by NamWater. This has 6 m3/month, which is regarded as baseline water use
certainly contributed to the improved management of for an urban family of five with full water services2. In
2. In the residential plot of Tsumeb, 64 per cent of the population has an income of N$400 or less. Note that income distribution in Namibia
is very skewed. The per capita income for the 25 per cent households with the lowest income is about N$1 600, compared to almost
N$150 000 for the 2 per cent households with the highest income.

Namibia
rural areas, the situation is likely to be worse. The non- monthly basic service fees irrespective of consumption.
payment of accounts leads to a vicious circle, where both This service fee is slightly higher than the consumption
NamWater and local authorities need to increase their fees for the minimum of 200 litres per day, and hence
tariffs to compensate for the non-payment of accounts. doubles the monthly bill. Windhoek currently applies
This practice makes services more unaffordable to the a rising block tariff: each month, the first 6 m3 are
poor in Namibia. provided at a subsidised rate, while in the 6-to-
36 m3/month range, the tariff is at cost-recovery levels.
In both Windhoek and Rehoboth, the intention of For consumption over 36 m3/month, the tariff is set
the City Council is to subsidise low-income households at long-term marginal cost. There is a general consensus
to make baseline water consumption (40 litres/ within municipalities and at NamWater that the strategy
person/day) available at a lower price. The lower tariff adopted in South Africa of providing free water up to
for basic water consumption might be affordable for a consumption of 6m3/month is ineffective, as it creates
low- or no-income earners. However, all households pay enormous problems for municipalities in covering the
Sustainable water supply in Windhoek
The municipality of Windhoek is served by three dams which are operated by NamWater. 50 boreholes
contribute about 4 per cent of total water supply, while the Goreangab Reclamation Plant provides an additional
27 per cent. The plant was built in 1968 and upgraded from 8 000 m3/day to 21 000 m3/day in 2001.
Windhoek was one of the first cities in the world to introduce direct recycling of effluent for drinking purposes.
Purified effluent is also provided to consumers for landscape gardening. Extensive water-quality monitoring 419
programmes are in place to ensure the required level of water quality after each treatment process, as well
as the quality of the water finally supplied to the City of Windhoek.
The City of Windhoek signed a performance-based Private Management Agreement with Windhoek
Goreangab Operating Company (WINGOC) in 2002. WINGOC has three shareholders, viz. Veolia Water,
Berlinwasser International and WABAG. The water-resource planning year runs from May to April, spanning
the rainy season. During May of every year, after the rainy season, the Department of Water Affairs, in
conjunction with NamWater, plans the integrated use of the resources. During 2005/06, the Goreangab
Reclamation Plant was operated at around 70 per cent of capacity. Due to abundant supplies in the dams,
the Department was able to rest the well field and limit abstraction from the boreholes to 1 million m³.
The sustainable supply of water to the city remains the top priority of the Department. The Department
is also in charge of wastewater collection and treatment, mostly for re-use. The Gammams Water Care Works,
where the bulk of the sewage is treated, was first built in the 1960s, and has been upgraded a number of
times. Some of the infrastructure components are fairly old, and serious problems are being experienced in
dealing with the amount of sludge at the plant.
In an effort to ensure sustainability for water demand in a context of scarcity, the municipality of
Windhoek introduced water-demand management in 1994. The strategy concentrates on changing consumer
habits by increasing public awareness of the importance of saving water, and on the implementation of a
block tariff system that applies a steeply rising water cost with increasing consumption. Some other measures
include: the reduction of residential plot sizes; the implementation of legislation to address water conservation
in Windhoek; and improved maintenance and technical measures to reduce leaks. In 2006, unaccounted-
for water was 10.3 per cent, a very good indicator compared to other municipalities.

Namibia
costs of supply (240 out of 273 are facing serious among functional groups and also according to the
financial problems), and it increases water wastages. economic dualism which characterises the economy;
42.2 per cent of the rural population is estimated to
The municipally of Windhoek practices integrated live below the national poverty line, compared to 6.7 per
water management, and also provides an example of cent for the urban population. In urban areas the per
the successful use of unconventional sources of capita income is about three times higher than in rural
additional water. Technological advancements have areas. An example of the differences among functional
allowed the implementation of innovative public- groups is that the incomes of commercial farmers are
private partnerships in the reclamation of water eight times higher than those of subsistence farmers.
(see Box).
Despite the large share of expenditure allocated to
education – between 20 and 26 per cent of the budget
Political Context and Human over the past 15 years – the net enrolment rate is only
Resources Development 52 per cent at the secondary level, compared to 95.7 per
cent at the primary level, and efficiency is low. Several
Namibia enjoys political stability, and a multi-party factors hamper the efficiency of the educational system:
system is in place. In the 2004 national elections, the as an inheritance of the pre-independence period, the
dominance of the South West African People’s northern regions perform badly, since teachers are not
Organisation (SWAPO), which has been the ruling adequately trained, the pupil-teacher ratio is higher
party since independence in 1990, was confirmed. compared to the central and southern regions, and the
SWAPO won 76 per cent of the vote, and the new infrastructure is much less developed. This divide
420 President Hifikepunye Pohamba was elected with applies also to rural and urban areas. In addition, the
76.4 per cent of the vote. The new administration has quality of teaching in scientific subjects is low compared
made the fight against corruption the cornerstone of to other subjects, and there is only one technical school
its policy. While Namibia ranks relatively well among in the country.
African countries in Transparency International’s annual
ranking, a number of recent scandals, including those In order to remedy the inequalities caused by the
at Avid Investment and the Offshore Development colonial past, the government has initiated a far-reaching
Company, raised concerns in the business community reform of its education and training sector in the context
and civil society that SWAPO’s seemingly impregnable of Vision 2030. Apart from free and universal basic
position may have turned the government into an education, Vocational Education and Training (VET)
instrument at the service of the party. Moreover, while has been regarded as key to providing the skilled workers
the fragmented opposition does not represent a serious and employees needed for industrialisation. Already
threat to SWAPO, the government party suffers from in 1994, the Namibian Government introduced the
deep factional divisions. National Vocational Training Act to regulate its VET
system. Today, more than ten years later, its ambitious
Namibia is characterised by one of the highest levels expectations have not been met. Major problems that
of income inequality in the world. The Gini coefficient the Namibian VET system faces include: a mismatch
is 0.6, according to preliminary results from the Namibia between skills supplied and skills demanded; low intake
Household Income and Expenditure Survey (NHIES) and output of graduates; high failure rates in national
2003/04. While this represents an improvement from trade tests; high unit costs; and inefficient management.
the 0.7 reported in the previous NHIES 1993/1994,
Namibia still ranks among the most unequal countries Due to the lack of efficiency and effectiveness in
in the world. The 10 per cent of households with the the education and training sector in general, the
highest income account for nearly half of the total government, with the support of the World Bank, has
income in the country. The incidence of poverty varies initiated the Education and Training Sector

Namibia
Improvement Programme (ETSIP), in order to improve 48.6 years in 2000-05. Aside from the human aspects,
the delivery and results of education and training. The the economic and social costs of the epidemic are
ETSIP strategic framework covers the period 2005- enormous. According to a recent IMF study, slippages
20. Major objectives include: improving equality in in counteracting the current spread of the epidemic
skills provision, reducing teachers’ absences, and raising could reduce real GDP growth by one percentage point
school enrolment rates. The success of the reform will in the period 2006-11. In an effort to control the
depend on improved co-ordination between the various epidemic, plans have been developed consecutively
education departments (basic, secondary, and higher from 1990 onwards. The Third Medium Term Plan
education), and on a well-functioning evaluation and (MTP III) for the period 2004-09 benefited from
monitoring mechanism. In addition, one of the major significant support from co-operating partners, and
challenges and requirements for successful reform is the made possible a reduction in drug prices. The MTP
increased involvement of the private sector in all aspects III takes a “results-based” management approach to
of the training system, ranging from the provision of achieving nationally and internationally agreed targets
training to management of the VET system. For this, in terms of prevention, access to treatment, care, and
it is crucial to provide incentives for firms to provide support services. The number of beneficiaries of
on-the-job training. antiretroviral therapies could reach 50 000 by 2009,
compared to an initial target of 25 000. The shortage
The first HIV/AIDS cases were reported in Namibia of adequate human resource capacity to manage and
in 1986, and the Ministry of Health and Social Services implement the national response in a well co-ordinated
estimates that 230 000 adults and children were living manner remains a major challenge. In this respect, a
with HIV/AIDS at the end of 2001. According to the National Human Resource Planning Task Force has been
2004 Sentinel Survey, Namibia exhibits an adult created to develop training capacity across the country 421
infection rate of 19.7 per cent. In turn, life expectancy in order to combat the spread and impact of HIV/AIDS.
at birth declined from 53.9 years in 1970-75 to

.
Niger
Niamey
key figures
Niger
G ROWTH, WHICH HAD REACHED 7.1 per cent in as they amount to just a 1 point increase in per capita
2005, slowed to 3 per cent in 2006. The strong GDP. Compared with 2005, when several street
performance in 2005 indicated a revival in economic demonstrations had taken place to protest against food
activity following the 0.6 per cent decline recorded in shortages and to demand free distribution of food
2004. This was primarily due to the high level of rainfall products, 2006 was on the whole
Limited growth opportunities
in 2005, which enabled a satisfactory cereal harvest peaceful. Higher growth would
restrained hesitant domestic
although less abundant than initially forecast. The require a stronger performance
and foreign investors,
December 2005 Francophonie Games in Niamey in the primary sector of both
although the global rise
brought about a recovery in construction activities and subsistence and cash crops,
in uranium demand
an increase in secondary activities. The 4 per cent against the background of
is a positive development.
growth forecasts for 2007 and 2008 are hardly optimistic increased access to irrigation.
425
■ Niger - GDP Per Capita (PPP in US $) ■ West Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Niger - Real GDP Growth (%)
8 3500
3000
6
2500
4
2000
1500
0
1000
-2
500
-4 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: National statistics institute and IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/666207447801

Niger
Recent Economic Developments exploitation due to nomadism, suffers from a lack of

professionalism and, for lack of access to veterinary
Agriculture continues to dominate Niger’s economy products, from a nearly total absence of health
even though less than 12 per cent of the country is monitoring of the herds. Processing activities remain
arable. Farming practices tend to be low-intensity and embryonic due to inadequate infrastructure (transport
mostly manual, take place in small-scale family plots vehicles, cold-storage slaughterhouses). Livestock is
almost exclusively aimed at self-sufficiency and still thus primarily exported as such, particularly to Nigeria,
use highly traditional techniques. Nearly all cultivated which is both an easily accessible and large market, to
land is devoted to rain-fed crops, mostly millet, sorghum Libya and to the Maghreb countries.
and cowpea, and to a lesser extent, cassava. The majority
of production – 85 per cent – is for on-farm A quintessential mining country, Niger has
consumption. Groundnuts and cotton, which in the abundant deposits: uranium and coal in the north,
past were sizeable export crops, now only contribute iron, phosphates and gold in the west. Gold production
marginally to the economy. The uncertainty of the began in 2004, but its contribution to the economy
rains, on which agriculture in Niger remains largely remains small. The country also has hydrocarbon
dependent, the ongoing drought and poor soil are all resources but their exploitation can only be envisaged
factors limiting agricultural productivity. Millet, the in the medium term. In June 2005, Niger and Algeria
most drought-resistant cereal, accounts for almost two- signed a 12-year oil exploration contract for the Kafra
thirds of total agricultural production. site, near Agadez, in the north of the country.
There was a serious food crisis in 2005, triggered Uranium extraction fell by 8.6 per cent in 2005
426 by a particularly harsh drought and locust invasions that to 3 million tonnes. On average, the Akouta mining
reduced the 2004 harvest and made the traditional enterprise, COMINAK, carries out two-thirds of
lean period of summer 2005 particularly difficult. The production. Niger granted a uranium exploration
14 per cent contraction of cereal production in the license to three Chinese enterprises run by the China
2004/05 harvest led to a cereal deficit of a little more National Nuclear Corporation in Teguidda (a
than 220 000 tonnes, leading to a famine situation 1 953 square kilometre concession) and Madouela
that affected more than 3 million Nigeriens. This cereal (1 872 square kilometres) in the region of Agadez.
crisis was aggravated by a rarefaction of grazing lands, Niger’s uranium industry has been dominated for
which decimated a significant proportion of livestock several years by a French enterprise, the Compagnie
in the northern zones, and a strong drop in rural générale des matières nucléaires (Cogema), but since
income. Emergency food aid primarily directed towards May 2006, the government has been trying to bring
the sections of the population deemed particularly at Canadian uranium-mining enterprises into the
risk was implemented. In 2006, however, the rainy country. After Canada and Australia, Niger is the
season, which started late, was particularly favourable third largest producer of uranium in the world and
for the country’s crops, particularly in the south. Good nearly all of its production is exported to France and
supplies of cereals in local markets contributed to Japan. Deep changes are taking place in the uranium
lowering prices. After contracting by 23.7 per cent in sector, related to the ongoing restructuring of the
2004/05, food crops in Niger rose by 37.2 per cent AREVA group, to the revival of the nuclear sector
during the 2005/06 agricultural season to reach and to the active search for new deposits. In
3 741 200 tonnes. Finally, it is expected that seed- anticipation of the exhaustion of its open-cast mine
cotton production will rise by 4.1 per cent to reach in Tamou, the Société des Mines de l’Aïr (SOMAÏR)
10 400 tonnes. began developing the Artois mine. In 2004, in order
to promote the mining potential of the country, the
Livestock is the second largest export sector (after government granted new exploitation permits to
uranium). This traditional activity, subject to extensive Canadian and Chinese enterprises for the mining of

Niger
gold (93 tonnes of reserves) and coal (50 million government wants to improve the contribution of
tonnes of reserves) resources. The main gold mine the mining sector to the national economy and to
currently in operation, Samira, has an expected annual public finances. Hence, the mining law ordinance
production of around 20 tonnes in the coming five number 93-16 dated 2 March 1993 was modified by
years. The Société des Mines du Liptako operates on Law N° 2006-026 of 9 August 2006 fixing new
this site under a partnership with the Canadian application procedures of the mining law. The main
enterprises Semafo and Etruscan, which hold 80 per features of the modifications are related, amongst
cent of the capital, the remaining being distributed others, to: i) the affirmation of the principle of
amongst the Niger state and private operators. Niger’s establishing an agreement for each exploration permit;
subsoil holds many other resources, both exploited (like and ii) the institution of dividing mines into areas and
coal) or awaiting exploitation (like the phosphate parcels by the mining administration, both for
deposits in the region of Ader or the oil and gas exploration permits and for the authorisation of small-
reserves in the region of Agadez, near Lake Chad). The scale exploitation.
Government services
Agriculture
19.4%
30.2%
Trade, transport and services 23%

9.5%
1.2% 1.9% Livestock
2.6% 6.2% 5.9% 427
Construction Forestry and fisheries
Electricity, gas and water Mining
Handicrafts

http://dx.doi.org/10.1787/203625766323
The industrial sector remains poorly developed The primary, secondary and tertiary sectors all
and concentrated on a few sub-sectors (food products, contributed to growth in 2006, by 0.4, 0.5 and
textiles, construction and public works). The small 2.6 percentage points, respectively.
number of significantly-sized enterprises explains why
a large proportion of the needs of the population are In terms of demand, growth was fed by a 7.2 per
met by imports mostly coming from Nigeria, with cent increase in the investment recorded in 2006, which
which Niger has a common border of 1 500 kilometres. followed a 22.7 per cent increase in 2005 thanks to
The majority of enterprises are in the informal sector, improved external trade. The dynamism of investment
posing a permanent problem in terms of taxation, both in 2005 is attributable to a 25.7 per cent increase in
for the enterprises working in the formal sector as for public sector investment linked to the expected strong
public finances. In Niger, the industrial index increased increase of investments on the basis of expected foreign
by 13.2 per cent in the first seven months of 2006, funds and by the special programme of the president
compared with the corresponding period in 2005. This of the republic. The 5.5 per cent increase in private
result mirrors the solid performance of the investment could be attributed to works undertaken
manufacturing and extraction industries, the production for the 5th Francophonie Games, to the extension of
of which rose by 15.5 per cent and 22.8 per cent, road and electricity networks and to household
respectively. The development of the manufacturing construction activities. In terms of foreign trade, the
industries is due to the activity in the food and beverage latest estimates indicate a volume increase of 6.7 per
sub-sector, which increased by 84.2 per cent. cent for imports and of 2.5 per cent for exports in

Niger

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 4.0 5.3 5.0 3.6 3.6
Private 13.6 13.5 8.0 7.0 7.0
Consumption 91.9 92.7 3.5 4.2 4.0

Public 18.5 15.0 7.5 5.2 2.6
Private 73.4 77.7 2.8 4.0 4.3

Exports 18.7 20.9 2.5 2.4 2.6
Imports -28.1 -32.5 6.7 5.3 4.9
Source: National statistics institute data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/508700282684
2006, which is below the 7.8 per cent recorded in and the improvement tax collection. Widening of the
2005. Furthermore, sources for growth of Niger’s tax base should, in particular, continue to be a priority.
economy are extremely limited and both national and Niger’s 2007 general budget is balanced at 498.4 billion
foreign potential investors are adopting a wait-and-see CFA francs, having grown by 9.08 per cent from 2006.
policy even though the recovery of world demand for Domestic revenue rose by 2.87 per cent and investment
uranium is a positive factor. expenditure grew by 11.11 per cent over the 2006
428 forecasts. On the whole, the fiscal policy defined by the
Macroeconomic Policies 2007 budget law is a logical progression from the
ambitious option taken through the 2006 budget in
Fiscal Policy favour of increased mobilisation of domestic resources
and public expenditure, and the continued
In 2005, the main budget balances deteriorated, less implementation with the state’s own resources of
so, however, than in 2004. The overall balance in 2005 important development programmes aimed at
(on a commitment basis, excluding grants) was -1.8 per improving people’s lives. More specifically, in order to
cent of GDP, against -3.5 per cent of GDP in 2004. reach the 2007 domestic tax goals, some new fiscal
The state of public finances brought about a worsening measures were proposed under the framework of the
of the overall balance (on a commitment basis, excluding strategy for domestic tax mobilisation adopted by the
grants) in 2006 compared with the overall balance of Ministry of the Economy and Finance in collaboration
June 2005. It stood at 55.5 billion CFA francs at the with development partners. These measures consist
end of June 2006, compared with 59.5 billion CFA notably of introducing a boarding tax on air transport,
francs at the same moment in 2005. The situation is increasing the number of excise duty stamps for vehicles
the result of a fall in total revenue, which went from not used for public transport and to increase tax stamps
17.1 per cent to 15.3 per cent, and of an increase in from 100 to 150 CFA francs.
overall expenditure, up from 18.9 per cent to 19.3 per
cent. The overall balance (on a commitment basis, The goals of the 2006-08 multi-annual convergence,
excluding grants) is estimated to have worsened in stability, growth and solidarity programme in terms of
2006 compared with 2005. This deterioration is tax revenue consist notably in increasing domestic
expected to continue in 2007 and to lessen in 2008. resources by reinforcing the capacity of the collection
entities, widening the tax base and reducing the scope
Placing public finances on a sounder footing should of exemptions. To this end, a number of additional tax
continue through the rationalisation of expenditure and administrative measures have been laid out.

Niger

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 8.3 10.3 11.4 10.7 10.8 10.7 10.7
Grants 5.6 5.2 6.1 6.0 4.1 3.6 3.9
Interest 1.6 1.2 0.6 0.6 0.3 0.3 0.4
Primary balance -1.3 -1.7 -3.0 -1.2 -3.7 -4.1 -3.4

Overall balance -3.0 -2.9 -3.5 -1.8 -4.0 -4.4 -3.8
Source: National statistics institute data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/747665782108
Amongst others, these include: i) introducing a fixed States (CBWAS) and aim at preserving CFA franc-
tax on the transit and/or re-export of tobacco and euro parity and controlling inflation. The monetary
cigarettes; ii) introducing a fixed tax on land ownership policies practised in the region are thus strict, reflecting
on buildings in towns; and iii) improving collection those of the European Central Bank (ECB), with a
of taxes and levies through stricter control. The state appropriate level of foreign reserves. The only difference
had already issued bonds for 15 billion CFA francs in is that in its monetary policy, the CBWAS takes into
November 2005, resorting to the non-banking sector account the economic situation of its member countries. 429
(banking systems outside of Niger) for a total of It remains alert to changes in their economic and
12.5 billion CFA francs. financial situation, particularly to the impact of oil
prices on domestic prices, to the performance of harvests,
In terms of public expenditure, the goal is to gear to the trend of credits to the economy and to liquidity.
it to the priority sectors of the poverty-reduction strategy
(infrastructure, education, health and rural development) In Niger, the net foreign assets of the monetary
while ensuring that total expenditure remains within institutions amounted to 122.6 billion CFA francs at
budget resources. It should be noted that in reference the end of June 2006, up from 114.2 billion at the end
to the agreement signed on 16 September 2005 with of May 2006, which is an increase of 8.4 billion CFA
Niger’s main trade-union federations, the government francs, related to the 11.5 billion CFA franc increase
had committed to recruiting 2 000 state officers in the CBWAS assets, partly offset by a fall of 3.1 billion
beginning in 2006. In preparation, the government CFA francs in bank assets. From one year to the next,
conducted a review of its workforce, which permitted net external assets increased by 83.9 billion CFA francs.
it to realise that fictional, or even deceased civil servants Outstanding internal debt stood at 168.5 billion CFA
were still listed on the payrolls, with salaries and francs in June 2006 compared with 170.6 billion CFA
allowances being regularly transferred to their bank francs in May 2006, which represents a fall of 2.1 billion
accounts. The mere savings achieved by eliminating CFA francs, or 1.2 per cent. The government’s net
these irregular payments hence allowed the state to position improved by 0.1 billion CFA francs. Credits
recruit 3 000 officers, rather than 2 000. to the economy recorded a drop of 2.0 billion CFA
francs to level at 145.0 billion in 2006. Compared
Monetary Policy with June 2005, they grew by 33.8 billion CFA francs
or 30.4 per cent. The money supply reached
Monetary and credit policies are conducted at the 277.1 billion CFA francs in June 2006 from
regional level by the Central Bank of West African 269.4 billion one month earlier, which is an increase

Niger
of 7.7 billion, or 2.9 per cent. Overall liquidity increased the industrial production of gold, which began in 2005,
through annual slippage by 49.6 billion CFA francs, will henceforth be featured as exports, which started
or 21.8 per cent. at the beginning of 2006. Imports show a preponderance
of food purchases, attesting to the country’s lack of
The aim will be to continue implementing the food self-sufficiency.
cautious community monetary policy in compatibility
with the goals of boosting economic activity and price These last two years, trade increased strongly in
stabilisation. To accompany this policy, the state will both volume and value. After the terms of trade
withdraw gradually from the banking sector, which deteriorated in 2004, the situation stabilised in 2005
will allow the private sector to gain proper access to with the revaluation of uranium prices having offset
resources in order to finance investments. the increase in the price of oil. The country’s landlocked
position results in very high transportation costs, which
The inflation rate reached an average of 2.3 per cent contribute to deepening the deficit in the balance of
at the end of 2006, compared with 6.9 per cent at end payments: in 2005, the latter reached 10.1 per cent of
2005. Prices are expected to ease in the cereal markets GDP, excluding official transfers, and 7.8 per cent,
thanks to imports from Nigeria and stocks built up at including these transfers.
the end of the 2005 harvest being released for
consumption. On this basis, inflation should come Uranium, which Niger has exported for several
out to an average of 1.4 per cent in 2006. This decades, remains the country’s leading export product:
rate – largely below the community ceiling of 3 per cent the growth recorded in 2004 reflected volume increases
fixed by the West African Economic and Monetary whereas that observed in 2005 was linked to the rise
430 Union (WAEMU) – should be maintained if the State in the selling price (from 21 000 to 23 100 CFA
continues to make sure that markets are regularly francs per kilogramme). Uranium exports, which
stocked with convenience goods and that food-security accounted for 30 per cent of the value of all exports
stocks are regularly built, all assisted by a cautious in 2005, could grow in 2006-07 as mining enterprises
monetary policy of the Central Bank. take advantage of the rise in prices on international
markets to sell their stocks and production surpluses.
More recently, the country has begun to export gold.
External Position Gold exports, practically confidential in 2003, rose
to 33.5 billion CFA francs. According to International
Exports in Niger are dominated by uranium Monetary Fund (IMF) projections, they could
products, and agricultural and pastoral products. These stimulate export receipts to the tune of 35 billion
are dependent on the fluctuations in world prices and CFA francs in 2006 and 2007. Other export products
in rainfall. In addition to these main export products, include cash crops (green beans, yellow nutsedge,

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -3.0 -5.3 -5.5 -8.0 -6.4 -4.9 -4.3

Services -5.9 -5.2 -6.1 -6.0 -5.6 -4.7 -5.5
Factor income -1.2 -0.5 -0.5 -0.4 -0.4 -0.3 -0.2
Source: Central bank data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/507842572804

Niger
cotton, sesame, groundnut oil, gum arabic, etc), fish- purchases. In 2005, Côte d’Ivoire recovered second
farming products, as well as re-exports. France is by place (with a 10 per cent market share) from the United
far Niger’s primary customer. In fact, nearly all of States the previous year, while Nigeria is in third place
uranium exports were allocated to France, while Spain with an apparent market share of 6.3 per cent, a figure
and Japan, which are other destinations for uranium that does not account for goods entering the country
produced by the local subsidiaries of AREVA, recorded outside of customs control. With the increased demand
no movements in 2005. for cereal, several Asian countries are no amongst the
principal suppliers to Niger. Imports increased in 2006
For 2006-08, the government’s policy will be to and should also increase in 2007 due to growing demand
promote exports of all products for which Niger for equipment and intermediary goods for infrastructure
possesses real comparative advantages. To achieve this, projects. The cost of imports, which amounted to
the awareness-raising and incentives policy for the 15 per cent of the value of exports in 2005, increased
diversification, increase and improvement of national in 2006 in the wake of rising oil prices.
production will be continued, notably through the
ministry in charge of foreign trade and the chamber The current account should benefit from the
of commerce. These measures should make it possible, Multilateral Debt Relief Initiative (MDRI) and should
amongst others: i) to bring the average annual increase gradually see its balance improve. Current transfers,
in exports to 5.2 per cent for 2006-08; ii) to limit the stimulated by foreign aid following the food crisis of
annual average increase in imports to 2.5 per cent; and 2005, could contract in 2007-08, while still remaining
iii) thus gradually to reduce the current account deficit in strong surplus.
on the balance of payments, including grants, to 6.2 per
cent of GDP in 2006 and to 5.2 per cent in 2007. For The openness of Niger is evident in the search for 431
2008, the deficit is estimated at 7.4 per cent. economic, commercial and military co-operation with
neighbouring countries. Niger is a member of the
Regarding imports, Niger remains highly dependent WAEMU, the Economic Community of West African
externally for its supply of basic foodstuffs, energy States (ECOWAS) and the Conseil de l’Entente
and industrial products. The recent progression in (Council of Accord or Council of Understanding). It
Niger’s imports is due to the increase in the cost of oil is also a member of the Autorité Liptako-Gourma
supplies and to cereal purchases connected to the (instituted in 1971 joining Burkina Faso, Mali and
country’s food problems. Niger in the aim of developing and promoting regional
resources), of the Niger Basin Authority and of the
In two years, from 2003 to 2005, Niger’s oil bill Lake Chad Basin Commission.
increased by 166 per cent whereas volumes remained
constant. Over the same period, the value of cereals After the June 2004 expiry of the $76 million
purchases tripled for a doubling of volumes (from agreement under the Poverty Reduction and Growth
200 000 to 400 000 tonnes): in 2005, Niger purchased Facility (PRGF) concluded in December 2000, on
285 000 tonnes of rice for 47.8 billion CFA francs. On 31 January 2005 the executive board of the IMF
the other hand, despite a 10 per cent recovery in value approved a new three-year programme covering 2005-
in 2005, the purchase of other consumer goods has fallen 07 for $9.4 million under a new PRGF. At the end of
from its 2003 level: basic food products such as oils and the first review and to help the country cope with the
fats, dairy products, flour and sugar are the largest food crisis, the IMF raised the amount of the
purchases. Manufactured products account for only a programme to $37.5 million in November 2005 and
small fraction. After noticeably increasing between proceeded with an immediate disbursement of
2003 and 2004, equipment imports barely evolved in $15.4 million. Following the March 2006 IMF mission,
2005. France remains Niger’s leading supplier with a the executive board approved the second review of
stable market share of around one-sixth of external the PRGF and the disbursement of a second

Niger
$8.6 million tranche. Total annual aid of the World Following the July 2005 decision of the G8 heads of
Bank is of the order of $70 to $80 million, distributed state, Niger was to have its debt with multilateral
between budget aid and project aid. In 2005, the institutions cancelled.
African Development Bank (AfDB) granted Niger
$18 million in budget aid. Finally, under the 9th Niger is eligible for the MDRI, like the 16 other
European Development Fund (EDF) 2000-07, Niger countries (12 of which are African) that have reached
benefits from National Indicative Programmes (NIPs) the HIPC completion point and are automatically
worth EUR 211 million (compared with admitted to the programme. The amount of relief
EUR 136 million for the 8th EDF 1995-2000). accorded under the MDRI will be deducted from the
country allocations of the International Development
According to the World Bank, Niger’s external debt Association (IDA), which will mean a decline in new
amounted to $1 949 million at end-2004, up by 6.5 per financing to a level equal to the MDRI debt relief.
cent over 2003. This debt, which is long-term and This mechanism aims to counteract the ethical hazards
concessionary, 85 per cent of which is multilateral, and concerns for fairness usually generated by debt
accounted for 55.5 per cent of GDP in 2004 compared cancellation.
with more than 90 per cent three years earlier. The
completion point of the Enhanced HIPC (Heavily For 2007-08, the government has committed to
Indebted Poor Countries) Initiative was reached on observing cautious debt management by falling back
12 April 2004. All of Niger’s debt with the Paris Club mostly on concessionary loans and by neither contracting
($197 million) was cancelled on 12 May 2004. nor guaranteeing any short-term foreign debt.
432

100
90
80
70
60
50
40
30
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF and World Bank.

http://dx.doi.org/10.1787/532217214311

Niger
Structural Issues Bridge, built by the United States in the 1970s, is the
only existing passage from the centre of Niamey to the
Recent Developments right bank of the river, where numerous residential areas
and several institutions are located, including the
Recent structural developments reflect a clear country’s sole university. It is also unavoidable for
will by Niger’s state to modernise the country with passengers wishing to travel to Ghana and Benin
the support of the international community and (through Burkina Faso), the ports of which are vital
development institutions. Despite its landlocked for landlocked Niger. Narrow and dilapidated, the
position, the country has agreed to measures that Kennedy Bridge suffers from enormous traffic jams
will eventually contribute significantly to improving during rush hours. The construction projects connected
the economy. to the 5th Francophonie Games organised at the end
of 2005 accelerated the development of road networks
In terms of road networks, the AfDB group that year. The improvement of roads is certain to
approved on 27 October 2006 a loan and a grant contribute to strengthening food security by facilitating
totalling $41.07 million to finance the Dori-Tera road access by the poor to the socio-economic infrastructure
upgrade and to facilitate transport in the Ouagadougou- to market surplus harvests.
Dori-Tera-Niamey Corridor. The aim of this project
is: to improve the service level of the community road- The privatisation programme has been delayed
network structure with a view to encourage commercial despite the institution of a national public procurement
trade in the ECOWAS/WAEMU integration corridors commission in 2004. For NIGELEC, the electricity
and thus promote trade between the states in the utility, the government adopted a privatisation scheme
Liptako-Gourma region; to reduce the general cost of envisaging a 51 per cent capital sale under a single 25- 433
cross-border transport; and to contribute to reducing year concession. For SONIDEP (oil products), after a
poverty in the region. To reach these objectives, first unsuccessful call for tender in 2003, by April 2004
91 kilometres of double-layer surfaced road between only 6.9 per cent of its capital had been sold to members
Dori and Tera is to be constructed, with a 7 metre- of the oil products local distributors group, Groupement
wide carriageway and 1.5 metre shoulders, Nigérien de Distributeurs de Produits Pétroliers. Given
22 kilometres of connected municipal road networks the slowness of the process, in 2005 Niger’s authorities
in double-layer surfacing are to be improved (also decided to review the privatisation strategy of these
7 metres wide with 1.5 metre shoulders) including two enterprises with the help of the World Bank.
11 kilometres in the town of Dori and 11 kilometres
in Tera, and, lastly, to connect 60 kilometres of Structural reforms are focused on the
improved rural earth roads to the main artery. The implementation of a priority plan developed following
AfDB loan, totalling 12.71 million Units of Account the Public Expenditure and Financial Accountability
(UA) ($18.76 million), and the grant of 15.11 million Review. They are also directed at restructuring the
UA ($22.31 million) will finance 90 per cent of the financial sector, which should lead to the division of
total project cost. The government of Burkina Faso, the national postal services and savings institution, the
Niger and the WAEMU will cover the remaining Office national des postes et de l’épargne, into two
10 per cent. In addition, the People’s Republic of entities, one in charge of managing postal services and
China decided to finance the construction of a second the other of financial services. In addition, the state’s
bridge over the River Niger in Niamey. In the realisation withdrawal from the capital of Crédit du Niger is also
agreement of this project signed on 18 July 2006, continuing.
China allocated an envelope of CNY 20 million
(EUR 1 980 million) and an interest-free loan of Concerning public-sector reform, in October 2006,
CNY 30 million (EUR 2 977 million) to finance the Niger’s government resolved to test, for two years, the
construction of this second bridge. The Kennedy system of workdays with no breaks in public and para-

Niger
public administrations, local government, and public in collaboration with other concerned ministries.
and private enterprises. This initiative aims at Compliance with quality standards, arbitration of
reinvigorating the administration by rationalising conflicts and the defence of consumer interests fall
working hours and improving public-sector productivity under the remit of the multi-sectoral regulation
and efficiency. authority, a joint body independent from the state.
Under the decentralisation laws, towns are theoretically
In July 2006 it was announced that Niger would responsible for water and sanitation, but decentralisation
benefit from a loan of $19.23 million is advancing slowly and towns are still only marginally
(EUR 15.1 million) from the AfDB group to finance involved in these areas. Outside of the activities of the
a project for the development of water resources for national water authorities, the Société du Patrimoine
agriculture in the south-west of the country. This five- des Eaux du Niger (SPEN) and the Société
year project in the regions of Dosso and Tillabéri aims d’Exploitation des Eaux du Niger (SEEN), the majority
at ensuring better water management through the of water services are delivered by user organisations or
completion of ten hydroagricultural projects and the village water committees. There are enormous capacities
reinforcement of twelve additional projects. It should to be developed locally. Although some urban
make it possible to develop 1 200 hectares of flood- communities can begin to take charge of water and
plain cultivation and 680 hectares of irrigated sanitation services, rural communities will remain
cultivation, and to reclaim almost 9 500 hectares of absent from the sector for some time.
degraded land.
Water rates have risen since 1999, from 196 CFA
Access to Drinking Water and Sanitation francs (average price per m3) in 1999 to 244 CFA
434 francs in 2005. Over the same period, the rate applied
Niger is a vast and arid country situated in the to the social sector using standposts and the poorest
Sahelo-Sudan zone (with less than 800 millimetres of households, increased by 10.43 per cent, from 115 to
rainfall per annum). Surface water resources, primarily 127 CFA francs. For the administration, the increase
constituted by the River Niger, are relatively large, even is around 42.4 per cent, while the rate applied to
if less than 1 per cent is exploited. Around 20 per cent industry and business increased by 39.45 per cent.
of renewable groundwater are exploited, with large These price increases, in part, aim to reduce the financial
technical constraints in certain regions (the productive deficit of the national water enterprise, the Société
water sheets are deep and thus costly to reach). Niger Nationale des Eaux (SNE), assessed at about 5 billion
rates well on the whole in terms of water resources on CFA francs, and in part to enable investments to
the national scale. improve the quality of service and ensure access to
drinking water to the greatest number possible. This
Institutionally, the most active departments in terms inflationary trend should continue so that the SPEN
of water management and sanitation are the Ministry can consolidate its financial position.
of Hydraulics, Environment and the Fight against
Desertification (MHE/FAD), the department of water In urban areas (around 50 towns), it is estimated
resources, the department of new works, the department that 70 per cent of the population has access to drinking
of inventory and management of hydraulic works and water and around 60 000 families are connected to
the department of hydraulic infrastructure, charged distribution networks. In the rest of the country (rural
with supplying drinking water throughout the country areas and small towns that are not serviced), coverage
outside of urban centres, the department of the is estimated at 50 per cent on average (2004 estimate
environment, the department of research and by the International Secretariat for Water published in
programme planning, and the environmental assessment their Blue Book). The national rate of access to potable
and impact studies bureau. The MHE/FAD supervises water would be thus around 59 per cent, which means
the implementation of the national water programme 6.7 million people are excluded from service. In terms

Niger
of sanitation, the rate of access depends on the level of Particularly since 2001, several reforms have focused
service considered: in large towns, most families have on the potable-water sector. These have had three aims:
access to a sanitation device, but it is rarely “improved” i) the privatisation of the SNE through a partnership
(for the most part, it is a traditional latrine), while in between the public sector and a private operator
rural areas, very few families have any sort of sanitation – supplying water to urban centres is henceforth under
device of any description. It is estimated that only the remit of the SPEN, while exploitation, transport
15 per cent of Niger’s population have access to proper and distribution of drinking water is under that of the
sanitation, with very great disparities between rural SEEN, a private enterprise; ii) the implementation of
areas and large towns. the water-sector project, with $76 million financing
– this project aims at restoring water production and
To reach the Millennium Development Goals distribution facilities in urban and semi-urban areas and
(MDGs) of access to drinking water, by 2015 the at improving their technical performance; and iii) re-
coverage rate should be 80 per cent. In terms of establishing the sub-sector’s financial health in order
sanitation, a national coverage rate of 50 per cent must to ensure its financial independence.
be reached, which presupposes the construction of
around 400 000 public and household latrines. The sector’s production has risen by 6 per cent on
average since 2001, although some areas are still
On 18 July 2006, the World Bank announced an experiencing water-supply problems. For these areas,
additional $10 million IDA financing to broaden the solutions such as sinking additional wells must be
water sector project (launched in 2001) aimed at envisaged and financing for them must be sought.
restoring water distribution systems in small towns in
Niger. In May 2006, Saudi Arabia granted Niger To attain the MDGs in terms of access to drinking 435
3 billion CFA francs (more than EUR 4.5 million) to water and sanitation, Niger must overcome several
finance the construction and restoration of around major challenges, the largest of which is improving the
100 potable water wells in three regions. A previous institutional framework by strengthening the link
programme that cost an estimated 11.3 billion CFA between the water and sanitation sectors, and the
francs (more than EUR 17 million) wholly financed Poverty Reduction Strategy Paper (PRSP). In this
by Saudi Arabia enabled the drilling of 800 modern context, it is necessary to increase the effective demand
wells in several rural areas in Niger. for water and sanitation services in local communities
(population’s capacity to pay for services) in order to
Scheduled investments by funding agencies for ensure their financial sustainability.
2001-07 are estimated at around 98 billion CFA francs
($23.3 million) per annum. These investments are
repartitioned as $12.5 million for urban hydraulics, Political Context and Human
$10.5 million for rural hydraulics and $0.36 million Resources Development
for sanitation in urban areas. An examination of these
figures indicates that the investment necessary for Niger’s political scene has been recently marked
fulfilling the MDGs (estimated at $36 million per by tension between President Mamadou Tandja and
annum, or almost 2 per cent of GDP) is more or less Prime Minister Hama Amadou. The latter has
in place for urban projects, but that only two-thirds announced that he will run for the 2009 presidential
are met for rural ones. On the other hand, very few elections, at the end of the current presidential term.
resources have been earmarked for meeting the Political disagreements could emerge from this
sanitation MDGs, whether rural or urban, and this declaration and affect the unity in government
lag will be increasingly difficult to make up. Thus, the operations, all the more so as President Tandja owes
state and international funding agencies should his re-election in 2004 to the support of other political
concentrate their efforts on sanitation. parties – the Convention Démocratique et Sociale

Niger
(CDS) in particular – which were given posts in the relatively good food security and 28 zones in a disturbing
government. The principal opposition party, the Parti situation. These latter are found in the regions of
Nigérien pour la Démocratie et le Socialisme (PNDS), Tillabéri, Dosso, Zinder, Tahoua, Maradi and Agadez.
could see its popularity increase from the political In all, 839 357 people face extreme food insecurity,
fallout of the food crisis that raged in the country in marked by consumption of famine food, sale of
2005 and the social unrest that followed. production material and reduction in the number of
daily meals.
Some of Niger’s non-governmental organisations
(NGOs) and organisations put the “dead country” In terms of nutrition, the preliminary findings of
(pays mort) movement into action in August 2006, the the 2006 demographic and health survey (EDSN/MICS
second in one month, to protest against living conditions III) indicate that the level of chronic and acute
and difficulties of the population in accessing social malnutrition in children under the age of five is 50 per
services. This movement was planned by the Coalition cent and 30 per cent, respectively, higher than when
contre la vie chère au Niger (coalition against the high the same study was carried out in 2000 (when levels
cost of living in Niger), which includes several NGOs, were 39.6 per cent and 14.1 per cent). Moreover, the
organisations and local unions, and by the Coordination 36th epidemiological week was marked by a rise in
Démocratique de la Société Civile du Niger (CDSCN ). admissions in certain nutritional recovery centres.
These two organisations had already launched several During this same period, the national health information
strikes and protests in 2006, in addition to the “dead system registered a combined total of 117 788 children
city” days on 22 March and 6 July that same year, under the age of 5, 11 730 of which suffered from a
calling for a reduction of at least 35 per cent in the price serious form of malnutrition. To deal with this food
436 of hydrocarbons, a reduction of at least 50 per cent in and nutritional problem, the government and its
medical and school fees and a reduction of at least partners have taken several preventative and relief
40 per cent in the prices of water and electricity. In measures. Amongst others, these include: i) treatment
July 2006, a committee empowered to negotiate with of malnutrition cases in nutritional recovery centres;
these organisations was set up. On 29 July, the CDSCN ii) targeted distribution of food supplements to children
cancelled a “dead city” action in Niamey in order to at risk; iii) sale of cereal at low prices; iv) targeted free
avoid clashes with militants from the coalition parties distribution of supplies; and v) “work for food” and
in power who had organised a march in support of the “money for food” strategies. In order to improve the
government bringing tens of thousands of people nutritional treatment of children, the World Health
together on the same day. All of these demonstrations Organisation (WHO) trained 48 regional trainers in
and strikes in June and July 2006 to protest against 2006 and made available paediatric kits to treat
soaring prices and the reduction of public services malnourished children in regional hospitals in Maradi,
signalled as much the disapproval of government policies Tahoua and Zinder.
as the problems that the country faces due to its low
level of development. These social disturbances have The health problems in Niger are common to all
not, however, seriously affected the stability of the of western Africa: malaria, tuberculosis and diarrhoea
government. The role of the opposition should remain are amongst the most deadly diseases. In Niger,
characterised by respect for the higher interest of social however, these problems are complicated by
cohesion in Niger. malnutrition, which affects almost 50 per cent of the
population each year. Measles, cholera and sleeping
The food situation has improved compared with sickness remain widespread in some areas of the
the same period last year, but according to the latest country. According to the United Nations Human
information supplied by the Early Warning System in Development Index, Niger has only three doctors per
August 2006, areas of local food insecurity remain. 100 thousand inhabitants, and only 16 per cent of the
On 2 September 2006, a survey revealed 32 zones with 600 000 births take place in a hospital facility.

Niger
Furthermore, 20 per cent of these children could die government statistics, reach half of the population.
before the age of five and in one case out of two, According to the WHO, annual public health
death would be due to malaria. In April 2006, Niger’s expenditure by Niger’s government is $5 per capita.
government voted a law introducing free access to While this figure is less than the $35 per capita that
health services for pregnant women and children the WHO considers necessary for basic health services
under the age of five. The government is also working in poor countries, health expenditure accounts for
to create a social fund to finance its programme of free 12 per cent of GDP in Niger, which makes Niger the
healthcare, but it is suffering from a lack of funds. A country in West Africa that invests the most in public
consultation and a treatment today cost 500 CFA health. On the whole, it is possible to confirm that
francs for a child and 1 000 CFA francs for an adult. the serious public-health problems that Niger faces
These sums are high for the residents of a country are henceforth a concern for the country’s political
considered one of the poorest in the world. Niger’s authorities, but it must also be noted that lack of
authorities have thus set out healthcare and anti- funds prevents them from making real progress in
malnutrition programmes, which, according to terms of care.
437

.
Nigeria
Abuja
key figures
Nigeria
N IGERIA CONTINUES TO MAKE PROGRESS on its far- and lower inflation. Real GDP growth in 2006 was
reaching economic reform programme, the National estimated at 5.3 per cent, and inflation decelerated to
Economic Empowerment and Development Strategy 8.6 per cent from around 18 per
Reform has improved
(NEEDS), aimed at accelerating economic growth, cent in 2005. Progress has also been
macroeconomic policies,
reducing poverty, and achieving the Millennium made in the areas of financial-sector
strengthened financial
Development Goals (MDGs). The reform programme reform, debt management, foreign
institutions, and created
received a significant boost in December 2006 when reserves accumulation, exchange
a more business-friendly
the IMF reviewed and approved the two-year Policy rate stability, and the fight against
context.
Support Instrument (PSI) for Nigeria. The PSI is corruption. Notwithstanding these
intended to help the government maintain prudent positive developments, the Nigerian economy is still
macroeconomic policies, strengthen financial confronted with many serious challenges, notably the
institutions, and create a conducive environment for high level of poverty, inefficient delivery of social
robust private-sector development. services, high youth unemployment, poor infrastructure
facilities, and widespread insecurity and crime. All of
The reform efforts have led to significantly-improved these problems lower the quality of life and undermine
macroeconomic results, with a modest GDP growth the business environment.
441

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Nigeria
Strengthening the reform process is clearly necessary. Recent Economic Developments

The most immediate concern is that pre-2007 election
spending could erode some of the gains, as past The performance of the Nigerian economy in recent
experience suggests. A successful conduct of the 2007 years has benefited both from the high world price of
elections and a smooth transition of power would mark oil and the efficiency gains resulting from economic
the first democratic transition in the history of Nigeria. reforms. Real GDP growth rate averaged 6 per cent
Moreover, political stability is essential in order to during the period 2002-06. This solid growth rate,
consolidate the achievements of the past few years. however, still falls short of the NEEDS target rate of
10 per cent required to achieve many of the MDGs.
The recent increases in world oil prices have enabled Moreover, after peaking at about 10 per cent in 2003,
the government to pay off its remaining external debt, real GDP growth slowed to 6.5 per cent in 2005 and
following the 60 per cent debt relief (amounting to to 5.3 per cent in 2006, due to the disruptions in oil
about $18 billion) offered to Nigeria by the Paris Club production in the Niger Delta. On the other hand, non-
of creditor nations. At the end of 2006, the Nigerian oil sector growth has been encouraging. Real non-oil
Parliament approved an expenditure of $1.4 billion to GDP grew by 8.9 per cent in 2006 and 8.6 per cent
liquidate the external debt owed to the London Club in 2005. In contrast, oil output contracted by 4.7 per
of non-sovereign creditors. The fiscal space created by cent in 2006, after the very weak growth of 0.5 per cent
the debt relief and high oil prices is expected to be in 2005.
used to finance investment in infrastructure and poverty-
reduction programmes. Growth is expected to improve to 7 per cent in
2007, largely due to increased oil production as stability
442 The 2006 census results estimated the Nigerian is restored in the Niger Delta, and to an anticipated
population at 140 million, an increase of around increase in public investment on infrastructure. In
50 million over the 1991 census. The census outcome 2008, economic growth is expected to return to its
indicating that the north accounts for 53.4 per cent of recent average of about 6 per cent as oil output
the population has proved very controversial. Many stabilises1.
southerners dispute the finding that the north is more
populous than the south, while northerners applaud The main drivers of growth in the non-oil sector
the results. These population figures are of great practical were telecommunications, general commerce,
importance, as they influence the distribution of manufacturing, agriculture, and services. The
government revenues. communications sector in Nigeria has boomed in the

http://dx.doi.org/10.1787/141527352238
1. The Central Bank of Nigeria forecasts GDP growth in 2007 at 7.9 per cent, but this seems be optimistic, as it is based on a best-case
scenario regarding the 2007 elections, oil production and oil prices, improvements in electric power supply, etc.

Nigeria
last five years, with growth averaging around 30 per cent The loss of competitiveness of Nigerian industry
per annum, driven largely by the expansion of Global appeared during the oil-boom period of the early 1970s
System for Mobile Communications (GSM) services. with the resulting real appreciation of the exchange
Large inflows of foreign direct investment (FDI) have rate2, which led to a surge in imports. The inability to
played a crucial role. The stock of telecommunications compete with imports can also be traced to high costs
FDI jumped from $50 million in 1999 to $7.5 billion of production caused by poor infrastructure and a
in 2005. The number of mobile phone lines has deficient business environment. The problems include:
increased from less than 0.25 million in 1999 to nearly power shortages, poor transport infrastructure,
20 million in 2005, with tele-density attaining 15.7 lines widespread insecurity and crime, lack of access to
per 100 inhabitants. The tremendous progress made finance, corruption, and inefficient trade-facilitation
in telecommunications has contributed to an overall institutions. The woefully inadequate electricity supply
improvement in the business climate, benefiting the is generally judged to be the most critical constraint,
manufacturing sector in particular. In both 2005 and for example by the World Bank’s investment climate
2006, the manufacturing sector grew by more than survey3. With incessant power cuts in Nigeria,
9 per cent per annum. The agricultural sector has also manufacturers rely increasingly on expensive generators.
performed remarkably well, with an average growth rate This problem is particularly acute for small and
in 2005 and 2006 exceeding 7 per cent. medium-sized enterprises (SMEs).
The contribution of the non-oil sector increased Total investment was estimated to have increased
from 61.2 per cent of GDP in 2005. Although to 23.9 per cent of GDP in 2006, up from 20.9 per
manufacturing has strengthened in recent years, the cent in 2005, as both public and private investment
sector still accounted for less than 5 per cent of GDP grew strongly. Overall investment is projected to 443
in 2006. The low share of the manufacturing sector in continue to increase impressively in the next two years
GDP reflects long-standing problems of competitiveness. in both the oil and non-oil sectors.

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 11.3 9.4 30.1 25.0 12.0
Private 14.9 11.5 17.0 15.0 12.0
Consumption 78.6 57.9 6.2 6.2 5.2

Public 11.9 21.2 4.3 5.9 5.4
Private 66.7 36.7 7.1 6.4 5.1

Exports 33.2 55.2 -4.0 3.1 2.3
Imports -38.0 -34.0 15.2 8.1 6.9
http://dx.doi.org/10.1787/653414784814
2. This is symptomatic of the Dutch Disease syndrome: an alteration in the relative price of the tradable sector (agriculture and manufacturing)
resulted in the appreciation of the local currency (naira), thereby leading to a decline in non-traditional exports and a surge in imports.
3. See Salisu (2006), “Determinants of Firm Performance in Nigeria: Evidence from Investment Climate Survey Data”, paper presented at
the African Economic Research Consortium (AERC) biannual workshop, Nairobi, Kenya, 2-7 December.

Nigeria
Macroeconomic Policies however, recorded a deficit of 2.7 per cent of GDP,

following a deficit of 1.1 per cent of GDP in 2005 and
Fiscal Policy a surplus of 1.5 per cent of GDP in 2004.
In conformity with the NEEDS agenda, Nigeria Around 570 billion naira (approximately $4.4 billion
maintained prudent macroeconomic policies. Fiscal or 3.5 per cent of GDP) was withdrawn from the oil
policy is based on a Medium-Term Expenditure stabilisation fund in 2006, and shared between all the three
Framework (MTEF) prioritising expenditure towards tiers of government (federal, state and local governments)
the attainment of the MDGs. In 2006 fiscal policy in accordance with the revenue allocation formula. This
prioritised infrastructure development. amount represented a shortfall of about 3.2 per cent in
projected oil revenues, caused by disruptions in production
Nigeria’s consolidated federal, state, and local in the Niger Delta. The use of the stabilisation fund to
revenues averaged around 43 per cent of GDP during finance the budget is worrying at a time of high oil prices.
2004-2006, with oil and gas contributing about 80 per Unless the social crisis in the Niger Delta is resolved, oil
cent. Consolidated expenditure accounted for 33 per production will continue to be disrupted. Increased
cent of GDP over the same period, thereby giving rise domestic revenue mobilisation from the non-oil sector,
to a very large consolidated fiscal surplus of about particularly through value added taxes (VAT) and company
10 per cent of GDP per annum. The federal budget, income taxes (CIT), is therefore a priority.

444
1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 7.2 8.3 7.3 6.2 6.6 6.4 6.2
Oil revenue 10.2 28.1 35.2 36.6 35.1 32.1 30.7
Interest 3.2 3.2 2.4 2.9 1.7 1.7 1.5
Primary balance -4.8 3.2 12.3 13.6 11.5 6.8 3.6

Overall balance -8.0 0.0 9.9 10.7 9.8 5.1 2.1
Source: Domestic authorities’ data, estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/221567223481
Monetary Policy demand help to explain the decline in inflation in the

face of a growing money supply.
Nigeria’s monetary policy aims at promoting price
stability. Inflation declined from double digits in 2005 In 2006, the Monetary Policy Committee (MPC)
to 8.5 per cent in 2006, in spite of a strong growth in of the Central Bank of Nigeria (CBN) introduced a new
monetary aggregates. The broad money supply (M2) interest-rate determination scheme. The new framework
grew 29 per cent in 2006, much higher than both the establishes an interest-rate spread of three percentage
16 per cent recorded in 2005 and the NEEDS’ medium- points above and below a short-term Monetary Policy
term target of 15 per cent for the period 2004-07. The Rate (MPR) set by the CBN. The upper limit is the
decline in food prices in 2006 and the rise in money REPO (repurchase agreement) rate at which the CBN

Nigeria
lends to banks. The lower limit represents the interest in the bureaux de change. Indeed, the implementation
rate which the central bank pays on overnight deposits of the WDAS has helped to narrow the premium
by other banks at the CBN. The MPR for 2006 was between the official and bureau-de-change rates from
fixed at 10 per cent, and so the lending and deposit rates 13.6 per cent in February 2006 to an average of 7.6 per
were 13 per cent and 7 per cent, respectively. Hence cent in the first six months of its operation.
the new monetary framework represents an interest-
rate-targeting system, as opposed to the previous system External Position
where interest rates were determined by the market.
Nigeria’s external position is heavily influenced by
The new framework has been criticised for a number developments in the international oil market, as the
of reasons. First, the interest spread is too large and country is both a major exporter of crude oil and an
excessively penalises banks that need to borrow reserves. importer of petroleum products. Although Nigeria is
This could lead to bank failures. In other countries, the the world’s eighth-largest exporter of crude oil, it
central bank interest-rate spread is normally between imports 90 per cent of domestically consumed
0.05 and 0.50 per cent. Also, since the REPO rate sets petroleum products4. Overall, of course, exports of
the floor for bank lending rates, the new policy will raise crude oil greatly exceed imports of petroleum products,
the cost of capital to the productive sector. so Nigeria is a large net exporter of oil. The average price
of crude oil increased from $39 per barrel in 2004 to
One of the goals of monetary policy in Nigeria is $55 per barrel in 2006. These high oil prices have
to maintain a competitive but stable exchange rate. entailed large merchandise trade surpluses of 24.7 per
The average rate stood at 128 naira per dollar for 2006, cent of GDP in 2004, 27.6 per cent in 2005, and an
compared with the average rate of 131 naira per dollar estimated 22.1 per cent in 2006. 445
in 2005. Even so, the exchange rate is uncompetitive,
given the disparity between the official and the parallel Merchandise trade surpluses have outweighed
market rates. In 2006, the central bank introduced the deficits in services, so that Nigeria has recently had
Wholesale Dutch Auction System (WDAS) as the main substantial current-account surpluses averaging 8 per
mechanism for exchange-rate determination and cent of GDP over 2004-2006; the surplus is expected
foreign-exchange management. The WDAS allows the to remain at around the same level of 8 per cent in the
CBN to engage in active trading with authorised dealers. next two years.
The key objectives of the WDAS framework are to
foster a unification of exchange rates between the official It is also noteworthy that long-term capital inflows,
and inter-bank markets, and to reduce the premium both foreign direct and portfolio investments, increased

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 8.2 13.4 24.7 27.6 22.1 19.6 18.0

Services -9.5 -9.1 -8.3 -6.8 -6.1 -4.5 -4.4
Factor Income -2.2 -14.4 -16.2 -12.2 -11.1 -8.8 -7.1
Current account balance -2.4 -6.5 4.0 12.0 8.0 8.9 8.8
http://dx.doi.org/10.1787/534840434802
4. One of the problems of the Nigerian economy is the incessant shortages of refined petroleum. The country’s four refineries are bedevilled
by maintenance problems. Shortages occur especially during major festivities, such as Christmas and “Eid” periods.

Nigeria
significantly due to the banking-sector reform establish a second single currency for the Anglophone
(consolidation) programme and other measures taken countries within ECOWAS, with a specified timeframe
to improve the business climate. Combined foreign for merging the two monetary institutions. ECOWAS
direct and portfolio investment was estimated to have is one of the regional groupings in Africa which is
increased to $7.4 billion in 2006, up from $6.4 billion negotiating the Economic Partnership Agreement (EPA)
in 2005. In an attempt to attract additional FDI, the with the European Union (EU). The EPA aims not only
government has recently established a One-Stop at creating a comprehensive free-trade area between
Investment Centre to facilitate procedures for foreign ECOWAS and the EU, but also offers opportunities
investors. Nonetheless, much still remains to be done for addressing key development challenges facing the
to improve the investment climate. region. EPAs also raise concerns, however, about loss
of government revenues and competitiveness of import-
Nigeria continues to play an important role in competing industries, given the reciprocal nature of the
regional (Economic Community of West African liberalisation. It is planned that the EPA negotiations
States – ECOWAS), continental (African Union – AU) will be concluded at the end of 2007 so that the agreed
and international trade agreements. On the regional protocols will come into effect in January 2008. It is
front, the ECOWAS customs union is viewed as a step however unlikely that the EPA negotiations will be
towards an economic and monetary union with a single concluded by 2007 due to the sheer number of
currency under the West African Monetary Zone unresolved issues. Nevertheless, obtaining yet another
(WAMZ). It should be noted that the Francophone WTO (World Trade Organization) waiver on the
countries within ECOWAS have a long history of current trade preferences accorded by the EU to African,
monetary union, with a single central bank and single Caribbean and Pacific (ACP) countries under the
446 currency, the CFA franc. Efforts are underway to Cotonou Agreement may prove very difficult,

Source: IMF.
http://dx.doi.org/10.1787/547856317125

Nigeria
particularly given the concerns and opposition of the simplify and harmonise tax procedures. The auditing
Latin American countries. powers of FIRS were also reinforced, and a tax-policy
unit was created in the Ministry of Finance.
At the continental level, Nigeria continues to chair
the Heads of State and Government Implementation Privatisation remains critical to the government’s
Committee of the New Partnership for Africa’s reform agenda. Some of the achievements in 2006
Development (NEPAD), and it has played an influential included: the privatisation and unbundling of the
role in moving forward the NEPAD agenda. Power Holding Company of Nigeria (PHCN) into 18
Internationally, Nigeria plays an active role in the companies and the setting up of a power regulatory
United Nations and is an influential member of the commission5; the sale of the Port Harcourt refinery; the
Africa Group at the WTO. privatisation of 11 oil-service companies; an Initial
Public Offer (IPO) for the government’s remaining
Nigeria’s stock of foreign reserves increased sharply 49 per cent share of Transcorp Hilton Hotel; and the
from $28 billion in 2005 to $49 billion in 2006, despite concessioning of the Central Railways Corporation.
the repayment of over $12 billion to the Paris Club of
creditors, and around $1.4 billion to the London Club. Trade policy reforms included the adoption of the
The huge foreign reserves and the savings on debt- five-band customs tariff under the Common External
servicing, along with related budget surpluses, relaxed Tariff (CET) of ECOWAS and the elimination of the
the balance of payments and fiscal constraints on prohibition list, in line with ECOWAS convergence
boosting investment in infrastructure and poverty- criteria. The reform of the Nigeria Customs Service was
reduction programmes. initiated, through fast-tracking of at least 40 per cent
of the value of trade. The government also introduced 447
a system for monitoring and evaluating the spending
Structural Issues of debt-relief savings in MDG-related sectors, such as
health, education, power, water, roads, and agriculture6.
Recent Developments As noted above, a one-stop investment centre was
introduced to attract foreign direct investment. The
In addition to consolidating macroeconomic stability, government continued its civil-service reform
the NEEDS programme aims at improving the business programmes by restructuring ministries and state-
environment, strengthening the financial sector, owned enterprises. The civil-service reforms have
promoting private investment, and creating jobs, succeeded in eliminating around 60 000 “ghost-workers”
especially in the non-oil sector. Recent developments and other workers, resulting in extra savings of nearly
in these areas include accelerating the privatisation 1 per cent of non-oil GDP.
process, reforming the tax system, liberalising trade,
improving infrastructure, and fighting corruption. Following the recent banking-sector reform (the
consolidation exercise), the Nigerian banking sector has
Measures for reforming the tax system have included become stronger and sounder. Indeed, 20 out of the
the restructuring of the Federal Inland Revenue Service 25 Nigerian banks were in the top 100 banks in Africa
(FIRS) in order to improve revenue collection, broaden in 20067, and 17 Nigerian banks were in the top 1 000
the tax base, and address tax evasion and avoidance. banks in the world, as opposed to none in 2005.
Efforts have also been made to strengthen inter-agency Banking dominates capitalisation in the Nigerian Stock
co-ordination on revenue collection, as well as to Exchange (NSE), and it is responsible for the recent
5. Three of the 18 PHCN companies were scheduled for privatisation in the first quarter of 2007.
6. Quarterly reports of spending in these sectors are being produced.

Nigeria
phenomenal growth of the NSE. Total bank assets considerable variation according to age and regional
increased by 104 per cent in 2006, while the ratio of categories. For instance, in 2006, youth unemployment
non-performing credits declined to 9.5 per cent in was 14 per cent and the urban unemployment rate
2006 from 19.8 per cent in 2005. The monetary was 20 per cent. The South-South geopolitical region
authorities also introduced a fast-track programme for has the highest rate of unemployment, at nearly 24 per
the registration of microfinance banks and bureaux de cent. Under-employment is also a serious problem in
change, and a comprehensive roadmap for the Nigeria. Total underemployment in 2006 stood at
development of the entire financial system is to be 20.2 per cent; while the figures for rural areas and the
launched in the first half of 2007. South-South region were 20.5 per cent and 26.2 per
cent, respectively.
The Nigerian government has, over the years,
introduced a number of financial assistance schemes Access to Drinking Water and Sanitation
for small and medium-sized enterprises (SMEs),
including the Small and Medium Industries Equity Nigeria is endowed with surface water resources
Investment Scheme (SMIEIS). These programmes, including rivers, streams, lakes, and wetlands which
however, yielded limited success for a variety of reasons, provide a source of drinking water for a large proportion
including the failure to remedy other deficiencies in of the population in areas with limited public water-
the business environment, most notably inadequate supply facilities. Rainfall, which constitutes a significant
infrastructure and corruption. In the past two years, source of freshwater, is highly variable across the different
however, a number of policy actions were taken to regions of the country, ranging from about 250 mm
restructure the SMIEIS. First, the coverage of the in the extreme north to over 500 mm in the south. The
448 scheme has been expanded to include all business urban and peri-urban populations, however, rely heavily
activities except general commerce and financial on underground water resources.
services. This means that non-industrial enterprises in
sectors such as agriculture, housing, transport and Nigeria has a policy on national water resources
utilities can be funded by the scheme. Subsequently, called the Master Plan: this provides a framework for
the name of the scheme was changed to SMEEIS integrated water-resources planning, development, and
(Small and Medium Enterprises Equity Investment management for the period 1995-2020. The first review
Scheme) to reflect the expanded focus. Second, the of the plan was carried out in 2006.
upper limit of banks’ equity investment in a single
enterprise was raised to 500 million naira, from Nigeria shares three major river/lake systems with
200 million naira previously. neighbouring countries, requiring bilateral and
multilateral co-operation through regional bodies such
Despite this ambitious set of structural reforms as the Niger Basin Authority (NBA) and the Lake
and some improvements, progress has been uneven. Chad Basin Commission (LCBC). The Federal Ministry
Nigeria’s ranking in the 2007 Doing Business Indicators of Water Resources represents Nigeria in these
improved only slightly from 109th to 108th. The extent international bodies. Recently, the NBA held an
of the government’s commitment remains uncertain, extraordinary session in Abuja to consider a regional
and will be tested by the upcoming elections. report on the River Niger. Similarly, efforts were taken
by the LCBC to halt the disastrous reduction of the
The overall official unemployment rate declined water surface of Lake Chad, from 25 000 square
from 18 per cent in the 1990s to 5.3 per cent in 2006. kilometres in 1964 to less than 2 000 square kilometres
However, the aggregate unemployment figure masks at present. One such initiative involved the transfer of
7. 4 Nigerian banks were in fact in the top 10 banks in Africa, and 17 were in the top 40.

Nigeria
water from River Ubangi in the Democratic Republic Nigeria’s water infrastructure has suffered from
of Congo to Lake Chad. years of poor maintenance, and the lack of sanitation
also constitutes a serious public-heath problem. The
The agency charged with the overall responsibility government launched a National Water Supply and
for water supply and sanitation in Nigeria is the Federal Sanitation Policy aimed at addressing these problems
Ministry of Water Resources. A number of projects through: the completion of hydrogeological mapping
were completed recently, and new ones are being of the country and the establishment of water-quality
planned. Between 2000 and 2005, the government laboratories; intensifying the rehabilitation and
completed the development of 1 519 motorised reactivation of the River Basin Development Authorities
boreholes and 3 552 hand-pump boreholes to cater for (RBDAs) and existing urban water-development
the water needs of 24.5 million people. In 2004, the schemes; encouraging private-sector participation in the
Federal Ministry of Water Resources procured and development and supply of water; and expanding and
distributed water-related equipment to states and local improving rural water-supply systems.
governments. In 2004, contracts worth 10 billion naira
were awarded for the drilling of 3 250 additional The international development agencies play a key
motorised boreholes and 1 579 hand-pump boreholes. role in Nigeria’s water sector. Some of the principal
New ongoing projects included 482 primary participants include the United Kingdom’s Department
hydrological stations, 50 groundwater monitoring for International Development (DFID), the United
boreholes and hydrological mapping for effective water- Nations, the African Development Bank (AfDB), the
resource administration, and 42 small- and medium- World Bank, Japan International Cooperation Agency
scale dams. (JICA), the government of China, and the European
Commission (EC). The AfDB is assisting the Federal 449
Water pricing in Nigeria differs across the country, Ministry of Water Resources to prepare a national
but in all situations, water is generally subsidised. In Rural Water Supply and Sanitation (RWSS)
urban and peri-urban areas, water charges are based programme. The World Bank assisted the Small Towns
either on the volume of water consumed or on a flat Water Supply and Sanitation Programme (STWSSP),
rate. In most rural areas, however, water is often supplied which is a comprehensive initiative for improving water
to the population free of charge. Water scarcity is a supply and sanitation in more than 4 000 small towns
common phenomenon in many towns and cities in in Nigeria. This initiative focuses on community
Nigeria, and this compels people to buy water from ownership and management of water supply and
private water vendors. The proportion of unaccounted- sanitation facilities. The World Bank also assisted the
for water varies across different regions, with the national National Urban Water Sector Reform Project, aimed
average being estimated at around 40 per cent. at increasing access to piped-water networks in urban
areas. This project has four main components: system
Public spending on water supply increased rehabilitation and expansion; public-private partnership;
substantially from a mere 7.3 billion naira in 1999 to capacity building and project management; and policy
80 billion naira in 2006. Priority was accorded to the reform and institutional development. Furthermore, the
completion of the Gurara Water Project for Abuja – World Bank assisted in the development of National
the federal capital – and its environs. Huge investments Guidelines for Regulating Water Supply and Sanitation,
were also proposed for the construction of dams in and in analytical studies on dam safety.
various parts of the country, including the Owiwi
Dam, Shagari Dam, Ile-Ife Dam, Jada Multipurpose With respect to access to water supply, the
Dam, Kashimbila Dam Project, and the Galma proportion of the population with access to potable
Multipurpose Dam. Similarly, significant funds are water rose from 30 per cent in 1999 to 65 per cent in
being provided for various irrigation and water-supply 2006. A breakdown of the 2006 figure shows that
projects nationwide. 67 per cent coverage had been achieved for state capitals,

Nigeria
60 per cent for urban areas, 50 per cent for semi-urban and ordered his reinstatement. Similarly, an Appeals
areas, and 55 per cent for rural areas. In terms of access Court annulled the impeachment of the Anambra
to sanitation, around 40 per cent of the population had State Governor.
access to basic sanitation in 2006, which is up from
34.2 per cent in 1990. The Millennium Development The bitter rivalry between the President and the
Goals (MDGs) target for Nigeria is to increase access Vice-President led to open accusations and counter-
to clean water to 68 per cent of the population, and accusations. The animosity intensified when the Vice-
also to increase access to basic sanitation to 70 per cent President helped to thwart a constitutional review
by 2015. On current trends, Nigeria is likely to meet which would have allowed the President to run for a
the target on access to water supply, but not the target third term in office – referred to as a “third term”
on sanitation. project. Following a report from the Economic and
Financial Crimes Commission (EFCC), the Vice-
A number of obstacles militate against the efficient President was charged with misappropriation of
exploitation of Nigeria’s water resources. One such resources of the Petroleum Technology Development
obstacle is the lack of co-ordination between the various Fund (PTDF). A high court, however, quashed the
agencies involved in the management, quality control, charges on the grounds that the EFCC report was
and monitoring of water projects. There is also the flawed. The feud between Nigeria’s top two officials
problem of lack of adequate project preparation, which intensified in December 2006 with a legal battle over
has led to project abandonment and failure. Related whether the Vice-President can remain in office after
to this is the problem of a poor maintenance culture, having joined a party (Action Congress) other than
as well as corruption and economic mismanagement. the one under which he was elected (People’s
450 Another important problem is the lack of adequate Democratic Party).
funding of water resources development. Although
the amounts devoted to water resources development In addition, there were inter- and intra-party
have increased in recent years, these are inadequate squabbles arising from the selection of the candidates
relative to the other sectors of the economy and also for the 2007 elections. Many of the candidates emerged
relative to the amounts required to enable the country through so-called consensus rather than election, and
make good progress towards achieving the water- in some cases the process was manipulated to exclude
related MDG. people who opposed the “third term” agenda. All of these
conflicts could cast doubts on the legitimacy of the 2007
polls. There were also concerns about the risk of
Political Context and Human technical flaws in the electronic voting process of the
Resources Development Independent National Electoral Commission (INEC),
and widespread allegations of voter-card fraud and
Political developments in 2006 included: the other irregularities.
impeachment of four state governors; attempts at
constitutional review to change the tenure of elected In spite of all these concerns, however, the INEC
officials; a bitter feud between the President and the has reiterated its determination to conduct free and fair
Vice-President; the registration of new political parties; elections and to oversee a successful transfer of power
and party conventions to elect candidates for the 2007 in 2007. For President Obasanjo, in particular, a smooth
general elections. Many of these developments resulted transition would earn him a unique place in the annals
in a number of legal battles. The impeachment process of Nigerian history as being not only the first leader
of the state governors was so seriously flawed that the to transfer power from a military to a democratically
Supreme Court of Nigeria suspended all the Chief elected government in 1979, but also the first to oversee
Judges of the affected states. The apex court also a successful democratic transition. It will be a rare feat,
reversed the impeachment of the Oyo State Governor not only in Nigeria, but also in Africa as a whole.

Nigeria
Nigeria has made some progress in the fight against The government has made significant progress
corruption, as evidenced by the work of both the towards addressing the HIV/AIDS pandemic. The
Independent Corrupt Practices and other related HIV/AIDS prevalence rate declined to 4.4 per cent in
offences Commission (ICPC) and the Economic and 2006, down from 5.8 per cent in the preceding year.
Financial Crimes Commission (EFCC). In the past The targets for 2007 are to reduce the prevalence and
two years, the EFCC has recovered more than $5 billion; incidence rates by 50 per cent of both sexual transmission
it has also successfully prosecuted 82 people, including and mother-to-child transmission of HIV, to ensure
high-profile public figures such as a former chief of 100 per cent access to antiretroviral drugs, and to ensure
police, government ministers, and an impeached state that at least 30 per cent of health institutions in the
governor. In February 2007, the EFCC published the country are able to offer effective care for, and control
names of 135 politicians, including 82 opposition of, HIV/AIDS. The National Action Committee on
candidates and 53 from the ruling party, considered unfit AIDS (NACA) has continued with its strategic focus
to hold public office because of corruption. Nigeria’s on treatment as well as prevention through advocacy,
progress has been recognised in the Transparency and information and education campaigns.
International’s 2006 Corruption Perceptions Index
rankings, where Nigeria ranked 142nd out of 163 The government has also started to address some
countries, which is considerably better than in previous of the problems that have bedevilled the education
years when Nigeria was at or near the bottom, as in 2005 system by increasing spending on education. Universal
when it was ranked 155th out of 158 countries. Basic Education (UBE), aimed at providing free
education for all pupils at the primary and junior-
Nigeria’s progress on social and human development secondary school levels, was expected to raise the
indicators is rather mixed, and more needs to be done primary-school enrolment rates. The total gross primary- 451
in all areas to achieve many of the MDGs on these school enrolment rate increased from 98 per cent in
indicators. For example, in 2006, Nigeria’s place in the 2000 to 120 per cent in 2005, whilst the total secondary-
Human Development Index (HDI)8 ranking of the school enrolment rate rose marginally, from 34 to
United Nations Human Development Report fell one 36 per cent, during the same period. Although school
place, to 159th out of 177 countries. Nigeria’s HDI is enrolment ratios have recently increased for both boys
below the average for sub-Saharan African countries. and girls, there is a considerable gender gap at all levels.
For instance, the primary-school enrolment rate in
Infant mortality (per 1 000 live births) declined to 2004 was 132 per cent for boys, as opposed to 107 per
101 in 2005, from 140 in the 1970s. Similarly, the cent for girls. The secondary-school enrolment rate
under-five mortality rate (per 1 000 live births) declined was 40 and 32 per cent for boys and girls, respectively.
from 265 to 197 during the same period. In 2006, the
government conducted a core welfare indicator survey A 2006 government survey data also revealed a
which showed that 55.1 per cent of the population wide disparity between the male adult literacy rate
had access to medical services, with a much higher (74.6 per cent) and the female adult literacy rate
access rate found in urban areas (70.9 per cent) than (56.8 per cent). Thus, on current trends, Nigeria may
in rural areas (47.8 per cent). The survey also revealed not be able to achieve the gender-related MDG. Nigeria’s
that 67 per cent expressed satisfaction with medical Gender-related Development Index (GDI), which
services. Here again, the rate was higher for urban captures inequalities in achievement between men and
communities (75.1 per cent) than for rural women, is 0.443, which ranks Nigeria 82nd out of
(62.7 per cent). 136 countries.
8. The HDI is a composite measure of three elements of human development: life expectancy (capturing a health profile), education
(measured by school enrolment and adult literacy), and standard of living (proxied by purchasing power parity income).

Nigeria
Nigeria has made great strides in reducing poverty that their economic situation had improved. A slightly
levels. According to a recent survey, the proportion of higher proportion of rural households (41.7 per cent)
people living below the poverty line declined from than households in urban areas (34.5 per cent) perceived
70 per cent in 2000 to 54.4 per cent in 2006. Rural areas their economic situation in 2006 as being better than
bear the brunt of poverty, with the poverty rate in excess in the preceding year.
of 63 per cent. Nevertheless, income inequality is higher
in urban areas than in rural areas; the Gini coefficients Crime and insecurity in Nigeria continue to pose
for urban and rural areas in Nigeria are 0.554 and 0.529, serious threats to the business climate and individual
respectively. According to the government core welfare well-being. However, results from the 2006 survey
indicator survey, 32 per cent of households in Nigeria showed some indications of moderate progress, with
perceived their economic situation as being worse in 2006 47 per cent of households reporting an improvement
than in the previous year, whilst over 39 per cent felt in security, against 20 per cent reporting a deterioration.
452

Rwanda
Kigali
key figures
Rwanda
R WANDA HAS MADE CONSIDERABLE PROGRESS in over the 2000/01-2005/06 period. Access to health
rebuilding its economic and social infrastructure since services has improved and the government is likely to
the end of the 1994 war. Its achievements towards achieve the Millennium
Tax revenue has increased
establishing nationwide security and a less corrupt Development Goals (MDGs)
but so must private
government are acknowledged by most international aimed at reducing maternal and
investment to achieve higher
donors. Real GDP grew by, 6.3 per cent in 2005 and child mortality. In the education
growth rates and the
is estimated to have increased by 4.3 per cent in 2006. sector, increases in gross primary
transformation of agriculture.
More robust growth is expected over the 2007-08 education and net primary
period based on strong performances in the mining and school enrolment are contributing to making the target
construction sectors. While Rwanda’s recent economic of universal primary education achievable by 2015.
performance has been encouraging, growth in output The government has also had substantial success in
has not been strong enough to make a significant reaching the MDGs related to gender parity in primary
impact on poverty reduction. According to a preliminary education and containment of the spread of HIV/AIDS.
report on poverty and living conditions in Rwanda,
carried out in 2005/06, the proportion of individuals In order to accelerate growth and make a lasting
in abject poverty declined from 60.4 to 56.9 per cent impact on poverty, the government is in the midst of
455
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Rwanda
launching a new Economic Development and Poverty The agricultural sector accounted for 43.1 per cent
Reduction Strategy, (EDPRS), which is to follow the of total real domestic product in 2005. Agriculture
just completed Poverty Reduction Strategy Paper remains the backbone and most important sector of the
(PRSP). The EDPRS is expected to focus on ways to Rwandan economy. It provides the primary subsistence
stimulate broad-based economic growth which are not livelihood for 90 per cent of the population of
covered in the PRSP. The EDPRS, which will be 9.2 million. However, the agricultural sector has
launched in 2007, provides a comprehensive analysis undergone minimal structural transformation over the
of the causes of poverty and focuses on six pillars: i) years resulting in low productivity
the transformation of the agricultural sector as an
important objective to reduce poverty; ii) human Agriculture in Rwanda is susceptible to the vagaries
development through improved education and health; of the climate, due to the absence of sufficient irrigation
iii) economic infrastructure; iv) human resources and and water storage systems. To address this problem, the
capacity building; v) private sector development; and Rwandan Ministry of Agriculture has introduced a
vi) good governance. number of medium-term measures to increase food
production. First, the government intends to carry out
a large scale study into the potential for rolling out a
Recent Economic Developments national irrigation system across Rwanda. Secondly,
given that inadequate rainfall has been a major cause
Real GDP growth in 2006 is estimated to have of poor harvests in recent years, the government is
been 4.3 per cent, down from 6.3 per cent in 2005. seeking the means to provide irrigation by working on
This GDP growth performance has been due to the hillside rain water catchment and household level
456 healthy performance of the agricultural sector, which irrigation methods. Thirdly, the government has plans
grew by 5.8 per cent in 2005. In 2006, agricultural to reclaim swampland in order to facilitate a major
output is expected to maintain its robust growth rate. increase in rice production. Rice was chosen as a
This is particularly due to the fact that ample rainfall government priority crop in 2004, because of its limited
was expected in Rwanda. Growth in the economy has vulnerability to rainfall and its suitability for planting
also been supported by the healthy performance of the in marshlands. Fourthly, the Ministry of Agriculture
mining sector and, to a lesser extent, the construction has instituted an ongoing programme to reduce soil
sector. Growth in the manufacturing sector on the erosion. In 2005, 37 per cent of the arable land was
other hand was not as strong as in 2005 due to a covered in the programme, followed by 50 per cent in
number of factors ranging from regional competition, 2006. Finally, the Ministry of Agriculture is working
to high electricity prices and interruptions in the supply on several projects, including a livestock development
of energy. programme, with the assistance of an NGO. The project

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Rwanda
has already provided fifteen thousand additional head production of beer and soft drinks accounted for over
of cattle, which were distributed to farmers in 2005. 70 per cent of total manufacturing output. The growth
in these components was attributable to increased
In 2005, growth in Rwanda’s industrial sector was demand for these products. Furthermore, the relative
a strong 11.1 per cent and appears to have been robust stability of the Rwandan franc during the year made
in 2006 as well. Manufacturing has led the way in the it easier for producers to import raw materials. Growth
industrial sector with 18 per cent growth in 2005. The in the services sector was estimated at about 6 per cent
largest sub-sector within manufacturing was the food in 2005, primarily driven by the information,
beverages and tobacco sector which is estimated to communication and technologies (ICT) sector and
have experienced strong growth in 2006 as well, due, the finance and tourism sectors. In the finance sub-
in part, to the granting of additional licenses for the sector, growth in private sector credit was over 20 per
brewing of alcoholic products. The performance of cent during the year. Within the tourism sub-sector,
the other sectors was mixed for several of the larger the number of non-resident foreign visitors grew by
industries. In 2005, the production of sugar increased 23 per cent in 2005. However, the total number of
by a sizable 61.3 per cent, electricity by 28 per cent, visitors to national parks fell in 2005, due to a reduction
soft drinks by 28.8 per cent and beer by 19.3 per cent. in the number of visits by Rwandan nationals.
On the other hand, cement production declined by Nevertheless, the number of foreign visitors continued
6.5 per cent while textiles decreased by 13.2 per cent. to increase. Tourism revenues grew by around 12 per
Cigarette production rose by 4.7 per cent. The cent in 2005.
Table 1 - Demand Composition (percentage of GDP) 457

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 6.8 10.1 -4.0 30.0 9.5
Private 8.0 8.8 15.0 6.2 6.0
Consumption 100.9 99.4 5.2 4.8 4.6

Public 9.7 12.6 5.5 3.9 3.9
Private 91.2 86.8 5.2 4.9 4.6

Exports 5.6 11.4 6.6 5.5 6.7
Imports -21.3 -29.8 8.5 7.2 4.5

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Total gross capital formation was 19 per cent of Macroeconomic Policies

GDP in 2005 and is estimated to have increased by
4.8 per cent in 2006. Total domestic investment has Fiscal Policy
recovered to its pre-war levels and is satisfactory when
compared with that of the other countries within the The government achieved an overall surplus of
sub-Saharan region. Since long-term sustainable growth 0.7 per cent of GDP in 2006 with the addition of
requires private investment, the strong growth in private grants. This is as a result of a strong increase in revenues
gross capital formation registered in 2006 and expected and grants which were recorded at 28.2 per cent and
for 2007 and 2008 augurs well for the future. 29.2 per cent of GDP in 2006 and 2005, respectively.

Rwanda
However, the government recorded a fiscal deficit of in 2006, compared to 28.5 per cent in 2005. Both
13.4 per cent of GDP excluding grants. The increase current and capital expenditures grew robustly, with the
in revenue was due to an increase in tax collection. former (excluding interest) accounting for 17.8 per
Taxes, as a share of domestic product, rose significantly cent of GDP and the latter accounting for 9 per cent
from 12.9 per cent in 2004 to about 14.7 per cent in of GDP in 2006. This was an improvement compared
2005 The strong performance in tax revenue can be to 2005 when the level of exceptional expenditures
attributed to the comprehensive tax reforms had risen almost 94 per cent compared to a year earlier,
undertaken in recent years as well as the strong and transfers had increased by 42.7 per cent. This was
improvement in tax administration and compliance. due to the introduction of the fiscal decentralisation
The tax reform was based on an increase of the “pay law and the receipt of an increased allocation by certain
as you earn” (PAYE) tax base as well as strong 2005/06 districts. Net lending in 2005 was considerably lower
performances in the collection of domestic taxes such than in 2004 as the government sought to repay the
as direct taxes and VAT. The robust performance in external loans of its public enterprises. Arrears payments
domestic taxes indicates that the revenue structure is in 2005 decreased compared to 2004.
gradually shifting from international trade taxes to
more stable sources of domestic taxes such as income Domestic revenue collection increased again in
taxes and VAT on goods and services. The weak growth 2006, reflecting strong economic growth and
in international taxes in recent years is partly due to improvements in the performance of the Rwanda
the flow of COMESA goods. Improved taxpayer Revenue Authority. However, the rate of increase was
compliance, tax administration capacity, training of nowhere near the significant gains achieved in 2004 and
staff, targeted technical assistance and the provision 2005. This indicates that the government’s spending
458 of computer systems and hardware have helped the plans for the 2006 budget were based on the continued
tax administration to maximise revenue collection support of its development partners since external
while steadily reducing the cost of tax collection. To grants continued to account for about 50 per cent of
improve further tax compliance, the government is government revenue. A fiscal surplus (including grants)
looking at strengthening taxpayer education and of 0.7 per cent of GDP is estimated in 2006; excluding
service delivery functions. grants this surplus becomes a fiscal deficit of 13.4 per
cent. With the exclusion of grants, deficits of 13.3 per
Government expenditure including net lending cent of GDP and 14.7 per cent of GDP are projected
grew strongly and accounted for 27.5 per cent of GDP for 2007 and 2008.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 10.1 10.3 12.8 13.6 13.3 13.1 12.9
Grants 5.3 8.0 11.9 14.1 13.4 13.1 13.6
Consolidated expenditurea 18.9 20.2 26.1 28.5 27.5 28.8 28.9

Interest 0.9 0.8 1.1 0.9 0.8 0.6 0.5
Primary balance -2.0 -0.2 0.9 1.6 1.5 -0.5 -0.4

Overall balance -3.0 -1.0 -0.2 0.7 0.7 -1.1 -1.0
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Rwanda
Monetary Policy liquidity of the banking system due to the significant

volume of external resources, the good performance of
Monetary policy in Rwanda is conducted by the the export sector and an increase in private transfers
National Bank of Rwanda (NBR). Rwanda does not resulted in an appreciation of the Rwandan Franc
participate in a regional monetary union. The objective (RWF). The RWF appreciated by 2.4 per cent to the
of monetary policy is to achieve price and exchange rate dollar, 10.9 per cent to the Euro and 14.1 per cent to
stability. Energy prices experienced a significant increase the British pound. The real appreciation of the RWF
of 45.4 per cent in 2005, driven by price increases in thereby affected the country’s export diversification
fuel and lubricants, electricity and charcoal. Despite the strategy by weakening the external competitiveness of
slowdown in inflation in 2005, money supply increased Rwanda’s export products
by 16.5 per cent in 2005 reflecting significant increases
in the volume of net foreign assets within the banking The gross official reserves of the central bank
system. Net foreign assets increased by 28.7 per cent, increased from $14.5 million in 2004 to $408 million
while credit to the economy increased by 18.6 per in 2005 due to the significant volume of the external
cent. The high growth of the money supply, which is resources of the banking system. This covered 7.1
higher than the inflation rate and real growth combined, months of imports of goods and services. Gross official
was due to an improvement in the monetisation of the reserves are estimated to have increased to
economy, caused by an expansion in the activities of $418.4 million in 2006, implying an import cover of
the savings and credit co-operatives and other micro- 6.8 months of goods and services.
finance institutions. The inflation estimate in 2006
was 6.5 per cent External Position
459
During 2005, the banking system experienced Rwanda’s current account deficit, excluding official
excess liquidity. As a result, bank demand for foreign transfers, decreased slightly from 19.4 per cent of GDP
exchange was not enough to absorb the liquidity created in 2005 to around 19.1 per cent of GDP in 2006. No
by the expansion of local government expenditure. significant change is expected in 2007 and 2008 and
This prompted the NBR to engage in monetary the current account deficit, excluding official transfers,
intervention by increasing treasury bill issues in order is projected to average about 20.1 per cent of GDP.
to absorb the excess liquidity in the banks, while at the
same time increasing NBR’s reserves. Although the Total exports increased from $97.9 million in 2004
significant issue of treasury bills by the NBR put some to $125 million in 2005 and are projected to have
pressure on interest rates, they did not rise significantly increased to $137 million in 2006. Coffee is currently
above the reference level but it was enough to have an the most important export crop in Rwanda, with tea
adverse effect on credit to the private sector. The coming a close second. In 2005, coffee and tea together

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -8.6 -9.9 -9.7 -10.7 -10.5 -10.1 -10.0

Services -7.1 -7.6 -7.5 -7.8 -6.8 -6.3 -4.1
Factor income -0.4 -1.8 -1.8 -1.3 -1.1 -0.6 -0.6
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Rwanda
accounted for 50 per cent of export receipts. The coffee products contributed $3.2 million. Imports soared
harvest declined in 2005 because the coffee trees needed over the 2004-05 period rising from $275.9 million
to regenerate after the bumper harvest in 2004. There in 2004 to an estimated $440.5 million in 2005,
was a substantial improvement in the average price of representing an increase of 29.9 per cent. As a result,
coffee, around 71.8 per cent, leading to a substantial Rwanda’s trade deficit increased from 9.7 per cent of
rise in the export value of Rwandan coffee. The price GDP in 2004 to 10.7 per cent of GDP in 2005. The
of tea remained stable at $1.6/kg, while growth in the trade deficit is estimated to have been 10.5 per cent of
value of tea exports rose from $21.6 million in 2004 GDP in 2006 and is expected to remain at about the
to $24.4 million. This was due to a larger tea harvest. same level in 2007 and 2008.
Cassiterite and coltan both accounted for about 30 per
cent of exports. There was a significant increase in the In April 2005, Rwanda reached the completion
value of cassiterite exports which increased from point of the Enhanced Highly Indebted Poor Countries’
$15.9 million to $ 17.9 million as a reduction in price (HIPC) Initiative. As a result, Rwanda became eligible
was compensated by an increase in volume. A robust for debt relief of $1.4 billion in nominal terms under
increase in production, coupled with a reasonable the Multilateral Debt Relief Initiative (MDRI). Total
increase in price, enabled the exports of coltan to rise external debt, after relief, is projected to be $354 million
from $13 million in 2004 to $29.8 million in 2006. by the end of 2006, which compares to $1.5 billion
The total value of Rwanda’s exports of goods swelled by the end of the previous year. In terms of GDP, this
by $23 million, with wolfram contributing $2.6 million, represents a decrease from 70.7 per cent in 2005 to 14.8
while re-exports contributed $17 million and other by the end of 2006.
460

Source: IMF.
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Rwanda
Structural Issues The most ambitious public sector reform currently

being undertaken by the Government of Rwanda is the
Recent Developments widespread programme of reform of the national public
finance management system, which includes an
Rwanda is now engaged in an ambitious expansive decentralisation process. The purpose is to
privatisation exercise. This follows years of strong enhance the government’s ability to use public
government involvement in many aspects of the expenditure to achieve its objectives for growth and
economy. The government is now embracing the private poverty reduction established in Vision 2020 and the
sector with deliberate and systematic policy. Private EDPRS.
businesses, schools, universities and tour farms are now
competing with state-owned enterprises. The The government’s 2007 budget was released in
government’s privatisation programme started with November 2006. Infrastructure, communications and
the enactment in 1996 of Law No.2 on Privatization transport have been accorded the highest priority,
and Public Investment. As of end-December 2006, 70 followed by energy, water and sanitation, soil protection
out of a total of 104 public enterprises have been and Community Development Fund (CDF)
privatised, four have been removed from the list and infrastructure. In transport and communication,
14 remain to be privatised. In addition, the management Rwanda plans to reinforce international trade by
of two other companies had been contracted out. Most modernising the road, river and lake networks. Major
of the privatised enterprises were small, with a few modernisation projects to be carried out by 2015 are
exceeding $1 million in sale price. The privatisation of the Kanombe and Bugesera airports and the Kigali-Isaka
the telecommunication company, Rwandatel, is the railway. In terms of river and lake transport
largest to have taken place. Rwandatel was bought by development, the government plans to make Lake Kivu 461
Terracom Sarl, a US Company, for $20 million. Several and other lakes like Akagera navigable. The
enterprises have also been liquidated. The assets of rehabilitation of road, river, lake and air transport is
three of these enterprises have been sold for $2 million. crucial to the country’s economy in view of the high
The enterprises which are at an advanced stage of cost of transport.
privatisation in 2006 include three rice factories
(Rwamagana, Gikonko and Bugarama), which were The Rwandan government considers the
attributed to three co-operatives. The buyers have development of the private sector a key element in its
entered into a joint venture with an Australian economic economic development and poverty reduction strategy.
operator who will invest $1.5 million to rehabilitate and The government believes that the private sector should
modernise the Rwamagana and Gikonko rice factories. be the engine of the economy’s growth. Rwanda’s private
In addition, the two tea plantations and factories of sector is small but growing. The sector consists of
Rubaya and Nyabihu, in the West Province and the family businesses, small and medium-sized enterprises
Hotel Regina of Gisenyi as well as the Guest House (SMEs), a few large companies and co-operatives. The
Urumuli Lodge of Byumba in the hotel and tourism Rwanda Private Sector Federation (RPSF) is playing
sector have been sold. Others were the cement factory an important role in building a successful Rwandan
of Rwanda (CIMERWA), the Gatumba mine private sector, as is the centre for the support to small
concession, some SMEs, notably two banks, the State- and medium-sized enterprises (CAPMER). RPSF
owned mining company REDEMI, and the State’s nurtures the private sector, providing business
30 per cent stake in Bralirwa, a brewery which is one development services and working together with other
of the largest businesses in the country. The privatisation stakeholders to promote the creation and development
exercise has increased government revenue and freed of SMEs.
up resources. More important, the private sector firms
have made huge investments of capital and technical According to the World Bank’s “Doing Business
know-how which benefit Rwandans. Index” for Africa, Rwanda has a relatively good business

Rwanda
climate in comparison to its East African neighbours and Access to Drinking Water and Sanitation
is in first place in the index for business creation. Business
procedures in Rwanda are quick and efficient, although Rwanda can be characterised as a country subject
the cost is significantly higher than elsewhere. Registering to water stress with a supply of renewable water per capita
property in Rwanda is also easy. The small number of of 1 104 m3 in the period 2004-07. The government
procedures required allows for faster processing at relatively of Rwanda has progressively sought to improve water
modest cost. Rwanda is ranked as less business friendly supply and sanitation management since 1999, when
in terms of employment practice, however, coming it held the first consultation on water and sanitation in
second only to Tanzania for employment rigidity and the country. A revised National Water Policy was adopted
second to none for redundancy costs. The enforcement in 2004. Programmes have been developed and
of contracts in Rwanda is still difficult. prioritised within the Economic Development and
Poverty Reduction Strategy, (EDPRS), and targets
In the financial sector, there were several developed for the MDGs by 2015.
developments in the supervision and regulation fields
in 2005 which aimed to improve the sector’s efficiency. The national water and sanitation strategy is best
Several new licenses were issued to Micro Finance illustrated in the government’s dynamic new policy,
Institutions (MFI). In addition, following agreement whose objectives are i) to increase access to safe drinking
on the Financial Sector Assessment Programme (FSAP) water; ii) to extend access to sanitation services; iii) to
with the World Bank and IMF, the central bank is manage the water resources in a sustainable and
taking steps to strengthen banking supervision. In integrated manner and; iv) to reinforce human and
particular, amendments to banking law were submitted institutional capacity. Responsibilities will be delegated
462 to parliament in September 2006 with the objective of to communities and districts. Decision-making will
bringing the legal framework for banking supervision be decentralised; restricting the focus of the central
into line with international practices. government to planning, regulation, promotion,
monitoring and oversight. With active community
To help improve agricultural performance, the participation at all stages of the project cycle, the
government has elaborated a strategic plan to reform government wants to ensure a demand-driven approach.
and promote the sector. The objectives of the plan are:
i) to reinforce professionalism and specialisation; ii) to The 2005/06 Integral Survey on Households’ Living
select export and other priority crops and to regionalise Conditions (EICV2) survey concluded that 64 per
their production so as to reduce production costs and cent of the population had access to safe drinking water
optimise comparative advantages; and iii) develop in 2005, while access by the urban and rural population
partnerships with the private sector so as to encourage to safe water was estimated at 66 per cent and 57 per
its participation in agricultural transformation. cent, respectively. With respect to improved sanitation
services, the rate of access in 2005 is estimated at 8 per
In the field of national resource management, a cent for rual areas and 10 per cent for urban areas.
new land law called “the organic law” was finally adopted
by parliament and signed into effect in 2005. The law The government of Rwanda has identified water
exempts agricultural land from taxes. Progress has also and sanitation as one of its top priorities in its Vision
been made in land planning and management through 2020 programme and Economic Development Poverty
better mapping and the creation of a land use database Reduction Strategy (EDPRS). It aims to increase the
and this has led to less bureaucracy in acquiring title rate of access to drinking water for both urban and rural
deeds. In the environment area, the “environment populations by 85 per cent by 2015, and 100 per cent
organic law” was adopted by parliament and the law by 2020. With respect to sanitation services, the
establishing the Rwandan Environment Management objective is to increase the rate of access for both urban
Authority is currently being debated in the Senate. and rural areas to 65 per cent in 2015 in keeping with

Rwanda
the MDGs and to provide universal access to improved is strong donor support led by the World Bank, the
sanitation by 2020. It is estimated that $820 million African Development Bank (AfDB), the UK
will be needed to achieve the MDGs. As a step in that Department for International Development (DFID)
direction, Rwanda’s public investments in water and and the Dutch and Belgian governments among others.
sanitation doubled in 2006 from an already reasonable The AfDB for example has recently committed
level of about 1 per cent of GDP in 2005. $18 million for rural water supply and sanitation
initiatives. The government has also streamlined
In a bid to mobilise external resources, a joint task Electrogaz, a national water and utility agency, and
force has been setup around the water and sanitation agreed a five-year contract for its management with a
sector strategy. With the government already having private sector operator in an effort to reduce costs and
doubled its budgetary commitments to the sector, there improve service delivery.
Table 4 - Household Access to Drinking Water and Sanitation by Source/Type

(percentage)
City of Kigali Other Urban Rural National
Drinking water source

Free public standpipe 5.4 25.5 29.9 27.7
Protected spring 5.0 12.3 22.7 20.5
Purchased from vendor 53.1 26.5 8.8 13.6
Electrogaz 18.0 9.5 0.2 2.3
Subtotal 81.6 73.7 61.6 64.2
River/stream/lake/pool 5.7 12.7 19.4 17.8 463

Unprotected spring 4.7 4.6 10.2 9.3
Bore hole 6.3 7.0 6.0 6.1
Plain well 0.5 1.1 1.6 1.5
Other 1.2 0.8 1.1 1.1
Subtotal 18.4 26.3 38.4 35.8
Total 100.0 100.0 100.0 100.0
Sanitation facility type

Enclosed pit latrine 80.3 63.1 55.1 57.7
Open pit latrine 11.6 26.9 37.7 34.8
None 2.1 7.0 6.7 6.4
Flush toilet 6.0 2.8 0.2 0.8
Other 0.1 0.1 0.3 0.3
Total 100.0 100.0 100.0 100.0

Source: EICV2 (December 2006).
http://dx.doi.org/10.1787/171831430166
Political Context and Human In order to bring service delivery and democratic
Resources Development processes closer to the grass-roots, the government
introduced and implemented a new territorial and
One of the major indications of Rwanda’s administrative policy in 2005. The policy reduced the
determination to pursue good governance has been its number of provinces from 11 to five, the number of
commitment to the African Peer Review Mechanism districts from 106 to 30, and the number of sectors from
(APRM). Rwanda completed the peer review process 1545 to 450. Coupled with progress on governance and
at the 5th Summit of the APR Forum in Banjul, the decentralisation, these changes facilitated the organisation
Gambia, in June 2006. of the local and municipal elections in February 2006.

Rwanda
Pursuing the process of healing and reconciliation, from Western countries have waned because of concerns
the government officially reversed its long-standing about political liberty at home and the government’s
support for the death penalty and decided to push for controversial involvement in the east of the DRC.
its abolition in 2006. A bill to that effect was passed These concerns have also been echoed by the 2005
in January 2007 which will save the lives of more than report of the African Peer Review Panel of Eminent
600 people convicted of genocide. Persons (APR Panel) on Rwanda, which was gentler on
the government than previous documents have been.
At regional level, the Congolese government’s efforts However, the APRM still called for the political scene
against the anti-Rwandan government militia based in to be more open to competing ideas. Nevertheless,
Democratic Republic of Congo have somewhat reduced donors commend the government for its relatively
tension between the two countries. There are also good record on poverty reduction and economic
increasing signs of rapprochement with Uganda. There governance reforms.
was the possibility of a visit by the president of Uganda
in early 2007 to strengthen relations. Despite ethnic Rwanda continued to make progress on gender
tensions, relations with Burundi are also warmer than issues and on poverty reduction. The country’s first
at any period since independence. Both governments Interim Poverty Reduction Strategy Paper (IPRSP) in
have a shared interest in bringing peace to their countries. 2000 hardly addressed any gender issues, even though
women accounted for some 60-70 per cent of the post-
In the field of governance, there have been a number genocide population. The 2000 paper glossed over
of achievements in recent years. A primary one has women’s needs in the post genocide era. Today, more
been activation of the second phase of the government’s than a decade after the genocide and despite the
464 five-year decentralisation programme, which is intended government’s efforts, Rwanda ranks 122nd out of 140
to enhance the population’s participation in decision- countries in the 2005 UNDP gender-related
making processes. It will allow for a better allocation development index. This shows that there is still more
of resources in favour of local government. work to be done in order to narrow gender gaps.
Disbursements from the Common Fund, one of the Nevertheless, the PRSPs launched in 2002 and 2004
main sources of financing to the districts, were, however, and the current EDPRS are among the most gender-
below expectations. This hampered the efficient running sensitive documents ever produced.
of the rural administrations since the rural districts
could not mobilise sufficient resources to run their The systematic mainstreaming of gender issues in
operations given their lack of an adequate local economic these papers and the commitment of the Rwandan
base to generate their own revenues in order to support government to their attainment is promising.
administrative overheads. Other achievements include: Nevertheless, major challenges still exist. Some of these
a national summit organised by the National Unity and challenges include: lack of integration of gender in
Reconciliation Commission (NURC) in May 2004, to policies, programmes, laws and projects; lack of gender
bring 1 000 Rwandans together to review progress in expertise at all levels; insufficient development of
reconciliation and debate the way forward; elaboration gender-related performance indicators: the continuing
by the NURC of a new action plan in July 2004; the weak socio-economic and political status of women;
training of more than 720 community volunteers insufficient gender-specific data in all areas and a lack
around the country to help NURC promote of action on gender issues on the part of institutions.
reconciliation at local level; and, in June 2006, the
release for country-wide consultations of a draft National In order to address these challenges, the government
Policy on Unity and Reconciliation. has been pursuing a number of key policy objectives
since 2004. First, it is seeking to ensure that gender
In spite of its record on governance, the Rwandan problems are systematically integrated in government
government’s international standing and its support policies and sectoral programmes at local and national

Rwanda
level. It has put into place mechanisms aimed at co- goods has increased, although many items remain
ordinating and popularising gender policies. Gender rare. Poorer households increasingly own such basic
focal points, equipped with knowledge on gender items as radios. Some 53 per cent of households now
integration, are already operational in ministries and own a radio, although only 6 per cent own a telephone.
other institutions. Gender promotion strategy databases The proportion of the population living in female-
have been created to allow for an effective system of and widow-headed households has declined. Poverty
follow-up and evaluation using gender-specific data. levels in these groups are higher than average, but
Secondly, to promote a legal framework guaranteeing have declined by more than in the population as a
gender equality and equity in all aspects of life, existing whole.
legislation relating to women has been revised and new
laws for the promotion of women’s equality have been Notable improvements have also been made in
proposed. Public awareness campaigns are improving health, education and housing. In the health sector, the
comprehension of the laws; new programmes for the frequency of medical consultations has increased
promotion of women are operational; the capacities of marginally, despite a rise in the incidence of reported
women’s councils and associations have been illness. However, the use of ante-natal services has
strengthened through the provision of suitable working increased significantly and differences in utilisation
facilities. Thirdly, there is a need to establish mechanisms between poorer and less poor households have narrowed.
to co-ordinate the work of all the principal figures Some 47 per cent of individuals are now covered by
involved in the promotion of gender equality and the health insurance, the vast majority by mutual insurance
strengthening of women’s capacities. arrangements. This seems to have substantially reduced
out-of-pocket payments for health care. Users are
Although poverty remains pervasive in Rwanda, satisfied with government services. Satisfaction is highest 465
some progress has been made in reducing it, notably in district administrations with respect to primary
in the domains of health, education and HIV/AIDS. education and health services. Satisfaction is lowest,
According to a preliminary poverty update report however, on drinking water supplies.
conducted over the period 2005-06, poverty has
declined due to growth in consumption per capita in Significant progress has been made in education.
real terms at an average rate of 3 per cent. Based on Enrolment in primary schools has increased substantially
comparable measures of consumption and poverty from 74 to 86 per cent over the period 2000/01-
lines, the surveys indicated that the proportion of 2005/06. Both the urban and rural populations have
individuals in poverty declined from 60.4 to 56.9 per witnessed an increase in enrolment rates. However,
cent over the period 2000/01-2005/06. Extreme poverty many children in primary schools are above the official
also declined. While poverty has decreased, economic primary school age range, due to late entry and delays
growth in recent years has been associated with an in their schooling. A small fraction of children complete
increase in inequality. The Gini coefficient, which primary education and go on to secondary education.
measures inequality, has increased from 0.47 to 0.51, The secondary school net enrolment rate has shown
suggesting that growth was unequally distributed. only a small increase over the period, from seven to
Poverty declined most in urban areas in proportional 10 per cent. In the rural areas, only 8 per cent of
terms. In the rural areas, poverty declined from 66.1 per children aged 13 to 18 years are in secondary education.
cent to 62.5 per cent. Household expenditure on primary school students
has remained roughly constant after adjustment for
Progress in rural areas is critical to having an inflation at an average RWF1 845 per student per year.
overall impact on poverty since 90 per cent of the poor Uniforms are the largest single element of educational
inhabit the rural areas. Uneven distribution, coupled expenditure. The cost of secondary schooling is much
with high levels of inequality, moderated the impact higher, with households spending an average of around
on poverty reduction. The ownership of many durable RWF68 000 each year on secondary school students.

Rwanda
Wealthier households spend much more than poorer testing. TRAC runs 256 health centres nationwide
households on secondary schooling. which provide ARVs and 234 other health centres
involved in the prevention of mother-to-child HIV
In housing, the survey revealed that the number of transmission. TRAC is faced with a shortage of
dwellings has increased by 280,000 during the period personnel to administer HIV medication in various
2000/01-2005/06. The increase has between roughly health centres. It also has a problem ensuring that
equal proportionately between the different zones, vulnerable HIV positive people get adequate food.
comprising the City of Kigali and other urban and
rural areas. However, the number of dwellings in other Labour-market reform is also quite high on the
urban areas has increased at a slightly faster rate. The government’s agenda. It has been engaged on labour
roofing material used by households provides a good market reforms since 2003 in an attempt to achieve
indication of their status. Corrugated iron roofs are two main objectives. One is to tackle the inherent
found mostly in urban areas. Ninety-seven per cent of skills deficiency in the labour force and the other is to
households in the City of Kigali have a corrugated iron ensure Rwanda’s integration in the East African
roof compared with 55 per cent in other urban areas. Community (EAC) by bringing its skills level up to
In other urban areas, another 32 per cent of households that of other community members. As a first step in
use tiles for their roofs, while, in rural areas, 50 per cent the reform process, the government has drawn up an
use tiles, 40 per cent corrugated iron and the others employment policy. This has been accompanied by the
thatch. The use of tiled roofs has slightly increased in establishment of a national labour council, comprising
Rwanda and that of thatch fallen. Corrugated iron stakeholders from the ministries, women’s organisations,
roofs still accounted for 44 per cent of all roofing trade associations, NGOs and others, who meet
466 materials during the period of the survey, however. regularly to discuss and make recommendations on
issues pertaining to trade unions and the labour market
The prevalence rate of HIV-positive people among in general. In addition to the policy, the government
adults aged 15-49 in Rwanda is now 3.1 per cent. The is revising the existing labour code to provide a
prevalence rate is higher among women (3.6 per cent) conducive legal and regulatory environment for private
than men (2.3 per cent). In the same vein, the prevalence investors. It is giving priority to labour and employment
is considerably higher in urban areas (7.3 per cent) policy, strategic planning and an accompanying action
than in rural areas (2.2 per cent). plan, women’s employment, the labour code, skills
auditing and vocational training centres. Some of the
About 200 000 HIV-positive Rwandans needed reforms in these areas have been completed but others
antiretroviral (ARV) drugs last year, according to the are still in progress.
Treatment and Research Aids Centre (TRAC). Of
these, around 50 000 HIV needed urgent treatment, Unemployment is not a serious problem in Rwanda.
although only 3 200 or 1.6 per cent of those in need However, pockets of unemployment exist among
were able to get access to ARV drugs. The Government unskilled people. Among skilled people, there is no
is urging Rwandans to undergo voluntary HIV testing shortage of work. Indeed, there is competition for their
since it has plentiful supply of ARV drugs. Health services from the Democratic Republic of Congo and
centres are used by TRAC to detect HIV early within Uganda. To tackle what unemployment there is, the
the population. The population can communicate with government is in the process of creating a vocational
TRAC through hotlines. TRAC is concerned, however, training centre with the aim of training people
that many parents do not take their children for HIV particularly for middle management jobs.

Senegal
Dakar
key figures
Senegal
A FTER REACHING 5.5 PER CENT IN 2005, growth 2006, beginning with the crisis in the chemical
might only have barely reached 3 per cent in Senegal enterprise, Industries Chimiques du Sénégal (ICS).
in 2006, owing to a conjunction of unfavourable factors.
These include difficulties encountered both by the Beyond the conjunctural Problems in agriculture
agricultural and industrial sectors and the rising cost dimension of these difficulties, the and industry, as well as
of energy. Congestion in Dakar, which already posed problems Senegal faced in 2006 reflect increased energy costs,
serious problems, has been exacerbated during its vulnerability and structural led to disappointing
approximately the last two years by the simultaneous weaknesses. Of note in particular, is GDP growth.
implementation of several large-scale road works. This the lack of buoyancy of its export
has not contributed to facilitating private-sector activity. sectors – groundnuts, fishing and phosphates – on the
The uncertainties preceding the presidential election international level. These weaknesses could themselves
of 25 February 2007 brought about additional be attributed to a lack of diversification in the economy
difficulties. Certainly, a recovery in growth is expected and a business environment still too unfavourable to
in 2007 (5.6 per cent) with lower energy prices and the investment, and particularly, to foreign direct
resolution of some of the problems encountered in investment. In this context, the development of new
469

■ Senegal - GDP Per Capita (PPP in US $) ■ West Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Senegal - Real GDP Growth (%)
7 3500
6 3000
5 2500
4 2000
3 1500
2 1000
1 500
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and national sources data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/252616550808

Senegal
sectors is difficult, although possible, as a few examples Within this framework, estimates at end-2006
in the domain of new information technology attest. counted on a 24 per cent contraction in cereal
Growth then remains fragile in Senegal, which, as in production. The groundnut sector, which drives the
2002, is facing an economic crisis, albeit to a lesser Senegalese economy, recorded production of
degree. Insufficiently strong and regular growth in turn 494 000 tonnes in 2006, which is a 30 per cent drop
explains the slow progress in sanitation and social and well below the average of the last five years. This
sectors, notably towards the Millennium Development fall attests to the structural difficulties of Suneor
Goals (MDGs). In fact, and despite a positive (formerly Sonacos, Société Nationale de
intermediate evaluation of the implementation of the Commercialisation des Oléagineux du Sénégal), the
Interim Poverty Reduction Strategy Paper (I-PRSP), largest enterprise in the country milling groundnuts
progress on the sanitation and social fronts remains and processing crude edible oil. Suneor was privatised
inadequate. in 2003 but it is still heavily supported by the
Senegalese state. Upstream, suppliers of inputs to
Aware of these weaknesses, the government groundnut producers benefit from a very large public
announced a number of strategies and action plans subsidy (5 billion CFA francs, around
designed to stimulate and stabilise growth at around EUR 7.62 million). Prices offered to producers are
7 per cent. The backbone of this series of measures also highly subsidised. Thus, in 2006, the producer
is constituted by the Accelerated Growth Strategy price of 150 CFA francs per kilogramme of groundnuts
(AGS), based on the identification of promising included 40 CFA francs of public subsidy (representing
clusters for the Senegalese economy and on the a total of 9 million CFA francs), with Suneor having
improvement of the business environment, and the assessed that it could not be competitive on the
470 PRSP-II, both unveiled in 2006. However, the international market by offering a price above
fulfilment of the AGS could appear much too 110 CFA francs. Still, the price of 150 CFA francs
ambitious, given the number of goals listed and, remains unattractive for producers. Suneor’s inability
above all, the difficulties encountered in 2006. For to offer higher prices is certainly due to low
example, the same year the AGS was presented, a international prices, but it is also due to the
condition as fundamental as reliable and affordable uncompetitive nature of the enterprise, which suffers
energy did not exist. The effective implementation from obsolete grinding equipment and precarious
of these strategies, that is, defining them coherently finances. In this context and invoking the World
and developing a clear vision of what is realistic, Trade Organization (WTO) safeguard clause, Suneor
should thus be central in the activities of the is calling for the maintenance of the high customs
government resulting from the 2007 election. protection from which it benefits for its crude-oil
refining activities. It argues that only this protection
enables it to maintain the profitability of its refining
Recent Economic Developments activities, which in turn make it possible to offset the
losses of its milling activities. At end-2006, a technical
The Senegalese primary sector, which accounted for and financial audit of Suneor was underway in order
approximately 14.4 per cent of GDP in 2005, to determine if the WTO safeguard clause, which
experienced a difficult year in 2006. With the notable was to expire in March 2007, was justified. Whatever
exception of cotton (6 per cent growth), nearly all the outcome, Suneor’s modernisation and eventual
crops recorded lower production despite overall diversification towards other oils, the development of
satisfactory rainfall. Agriculture suffered from groundnuts for consumption, and the strengthening
insufficient supply of fertilizers, which was linked to of cross-professional entities are imperative.
the difficulties of the ICS. More structurally, it suffered
from a falling trend in yield, reflecting the declining Fisheries, another driving force of primary sector,
quality of available seeds and soil degradation. also had a difficult year: cumulative off-loadings for the

Senegal
Government services Agriculture, Forestry and Fishing
19.6% 14.4% Mining and quarrying

0.9% 2.3% Gas, electricity and water
13.9% Manufacturing
Other services 19.7%

4.6%
Construction
9% 15.6%
Transport and telecommunications
Wholesale and Retail trade
Source: Authors’ estimates based on Department of Economic Studies and Forecasts (DPEE) data.
http://dx.doi.org/10.1787/501803408051
first nine months of 2006 were down by 17.7 per cent pilot phase). Above all, the Reva plan makes only
over the same period in 2005. The sub-sector suffers marginal progress on the path to socially difficult but
from structural depletion of halieutic resources due to imperative reforms to modernise Senegalese agriculture
overexploitation. In 2006, it also suffered from the and fisheries, in particular the reform of land laws
high price of fuel and possibly from the amplification provided for in the LOASP and reforms for the efficient
of illegal emigration, which is significant amongst regulation of the over-sized small-scale fishing sector
young fish workers. that is exhausting the country’s halieutic resources.
More generally, the Reva plan hesitates between the
In this gloomy context, the government launched development of competitive, productive and export-
a wide-reaching initiative, the Reva (return to oriented agriculture and the promotion of food security, 471
agriculture) plan, designed to re-energise the agricultural thus risking a contradiction impossible to manage.
sector, henceforth a priority. The government sees
agriculture as the engine for Senegal’s economic renewal, The secondary sector (21.7 per cent of GDP in
less for its weight in the GDP than for the number of 2005, including construction) failed to make up for the
households depending on it. This change in government weakness in the agricultural sector. It posted a
priorities – agriculture was not initially high amongst contraction of 6.6 per cent during the first three quarters
its concerns – also signals a desire to keep in the country of 2006 over the same period in 2005. The key sub-
young people who might be tempted by emigration. sector of phosphates was particularly damaged by the
Reva provides for the establishment of agricultural catastrophic financial situation of the ICS, which at end-
zones of excellence heavily equipped with technical 2006 posted 65 billion CFA franc in annual losses and
production methods and irrigated land, some of which 215 billion in debts (80 billion of which was held by
will be aimed at export, and others at food self- the local banking sector). These difficulties adversely
sufficiency. This plan is set out as the set of different affected both exports and the state budget, and led to
actions expressing the priorities listed in the AGS, in concerns about the stability of the local banking system.
the agriculture, forestry and pasture framework law Added to these problems were those of the energy
(LOASP) of May 2004 and in the PRSP-II presented sector: cumulatively, over the first nine months of
in 2006. Indeed, the aims of Reva are in line with the 2006, chemical industries recorded a 51.6 per cent fall
food-security issues outlined in the PRSP-II. That said, compared with the same period in 2005 due to the drop
at end-2006, the link between the objectives of Reva in oil-refining activity. For its part, electricity generation
and those of the AGS was still far from perfect. The was riddled with numerous load sheddings in 2006.
plan has also met with scepticism due to its highly These problems arose out of the difficult financial
administrative and proactive nature, its great ambition situations of the oil-refining enterprise Société africaine
(“the return to agriculture”) and the amplitude of funds de raffinage (Sar) and the national electricity utility,
to be raised (237 billion CFA francs in the 2006-08 Senelec, which can themselves be attributed to an

Senegal

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 5.1 8.1 10 7.0 7.0
Private 10.4 15.6 4.0 4.0 4.0
Consumption 91.1 91.5 7.6 3.3 5.4

Public 12.8 13.9 14.0 0.4 4.4
Private 78.3 77.8 6.7 3.8 5.6

Exports 27.7 26.1 -9.4 9.8 2.4
Imports -34.3 -41.5 6.8 2.3 4.0
Source: DPEE data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/432752372853
incomplete pass-through of the rise in oil prices to foreign public-works enterprises that benefited from
consumer prices for electricity and butane, and to a price large state infrastructure contracts. Sector difficulties,
structure that is not adapted to fluctuations in world worsened congestion in Dakar and pre-electoral
oil prices. Compensatory government subsidies were uncertainties all weighed on private investment.
both inadequate (only covering around 50 per cent of Domestic demand was sufficiently robust against the
472 Senelec and Sar’s foregone earnings) and disbursed late. backdrop of a weak increase in national revenue to
A dispute between Senelec and the American corrode the national savings capacity and to make the
independent power producer GTI also penalised deficit much deeper, estimated at 13 per cent of GDP
electricity generation. in 2006. Overall, the economy should not grow more
than 3 per cent in 2006.
Finally, the chief drivers of economic activity were
construction and the tertiary sector (44.3 per cent of However, the Senegalese economy could rebound
GDP in 2005). The former (cumulative growth of in 2007, when growth could reach 5.6 per cent. The
9.9 per cent over the first nine months of 2006) was cash-flow problems of ICS are on the way to being
sustained by ambitious public-investment programmes solved: the state has reassured the banking sector by
and by non-residents’ transfers, which continue to feed guaranteeing its debt and an agreement for the
property demand, particularly in Dakar. This enterprise’s durable financial rescue will necessarily
contributed to the buoyancy of services (20.8 per cent have to be concluded between the chief shareholders,
growth in turnover), whether in telecommunications, the Indian Farmers Fertiliser Cooperative Limited
real-estate services or insurance. Only trade suffered from (IFFCO) on the one hand, and the Senegalese state on
the erosion of household purchasing power linked to the other. In the energy sector, a recovery is in sight:
the difficulties in agriculture, with trade margins down the dispute between Senelec and GTI was on the point
3.4 per cent. of being resolved at the end of 2006, while the second
unit of the Kounoune power station should be
The conjunction of unfavourable factors in 2006 commissioned in 2007. Since October 2006, Sar and
and its very strong negative impact on the contribution Senelec have also been authorised to pass on, gradually,
of exports to growth was only partly offset by the good to consumers the rises in the price of oil. In 2007, and
performance of public and private consumption and in the longer term, the continuation of large projects
by vigorous public investment. The effects of this latter under the Organisation of the Islamic Conference
on the local fabric remain limited, as it was mostly (OIC) and the implementation of ambitious

Senegal
investments scheduled under the AGS and PRSP-II Fiscal Policy

should sustain domestic demand. PRSP-II financing
amounts to 3 553 billion CFA francs (approximately Although the Senegal’s fiscal position actually
EUR 5.416 billion) between 2006 and 2010, remains healthy, the country has nonetheless experienced
1 736 billion CFA francs of which are already to have a strong deterioration in public finances at end-2005
been granted under the 2006-08 three-year public- and in 2006. Yet, public revenue performed well: for
investment programme. To this could be added the the whole of 2006, total revenue and tax revenue are
start of work on the industrial and technological expected to be, respectively, at the level of 960 and
platform in Diamniadio if the financing earmarked 927 billion CFA francs, a 9 per cent increase in each,
under the Millennium Challenge Compact funded by compared with 2005. This rise is due to the exceptional
the United States is obtained in 2007. The country’s increase in indirect taxes, which accounted for one-third
capacity to absorb all of these investments, however, of revenues during the first nine months of 2006,
remains questionable. The 7 per cent growth objective particularly customs duties (17.3 per cent growth) and
set out in the PRSP-II for the coming years is thus value-added tax on imports (15.4 per cent). These
highly ambitious. exceptional results are due to the soaring price of crude-
oil imports as well as to an increase in the volume of
refined products arising from the problems encountered
Macroeconomic Policies by Sar. Enterprise-tax revenues remained stable, against
the backdrop of the implementation of the reduction
Measured against the West African Economic and of the tax rate applied to enterprises from 33 per cent
Monetary Union (WAEMU) convergence criteria, to 25 per cent, thus attesting to progress made in
Senegal’s performances are traditionally the best in the widening the tax base. 473
sub-region. In 2005, the country fulfilled seven of the
eight criteria: only its current deficit of 8.4 per cent of In reality, the sizeable drifts in the execution of the
GDP was above the 5 per cent ceiling. Notably, it is 2006 finance act can be attributed to public expenditure.
the only WAEMU country to have respected the higher For all of 2006, expenditure is estimated to have risen
than 17 per cent tax-to-GDP ratio criterion by posting by more than 19 per cent over 2005, and current
19 per cent. Still, in 2006, its performance deteriorated: expenditure is expected to have increased by 23 per cent.
the criteria for current deficit, basic fiscal balance and Human-resources expenditure rose significantly in
non-accumulation of domestic payment arrears were 2005 and 2006 (5.7 per cent of GDP in 2007 against
not expected to be met. 5.2 per cent in 2004). Current expenditure was

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Total revenues and grantsa 18.3 20.0 20.5 21.1 21.8 21.8 21.8
Tax revenue 14.9 17.0 17.5 18.8 19.4 19.3 19.4
Grants 2.8 1.9 2.1 1.7 1.7 1.8 1.8
Interest 1.2 1.1 1.1 0.9 0.8 0.9 0.9
Primary balance 0.9 -0.5 -1.5 -2.3 -4.7 -3.4 -3.5

Overall balance -0.3 -1.6 -2.6 -3.2 -5.5 -4.3 -4.4
Source: DPEE data; estimates (e) and projections (p) based on authors’ calculations. http://dx.doi.org/10.1787/356552653348

Senegal
significantly higher than the amount initially approved unprocessed hydrocarbons should once again become
in the 2006 finance act. This strong rise in current profitable. In 2007, improvement of the fiscal position
expenditure is principally due to consumer price will also depend on the resolution of the crisis in ICS,
subsidies for electricity and butane, which amounted since the state has guaranteed the enterprise’s bank
to 103 billion CFA francs, or nearly 10 per cent of the debt.
state’s resources (against 5 per cent in 2005 and 1.5 per
cent in 2004). It could also be put down to the 2003/05 Management of public finances in Senegal has
programme to recruit 15 000 civil servants, the made significant progress over the last years. The tax
implementation of which carried over to 2006, as well base has continuously grown and tax revenues, which
as to unscheduled re-evaluations of the wages of certain accounted for 16 per cent of GDP in 2001, are now
categories of state employees. In 2006, the state budget more than 19 per cent of GDP. The proportion of
also had to bear a strong increase in investment current expenditure in the budget shrank from 69 per
expenditure, estimated at 14.2 per cent. cent in 2001 to 60 per cent in 2006, while capital
expenditure increased measurably (from 31 per cent to
This drift in public expenditure resulted in a strong 40 per cent of the budget between 2001 and 2006).
deterioration of the fiscal balance. Not only should These adjustments are in line with the government’s
the basic fiscal deficit, as defined by WAEMU, be in ambitious investment programmes, notably defined
the order of 2.2 per cent of GDP in 2006, but the overall in the framework of the previously mentioned three-
deficit, including grants, could reach 5.5 per cent in year public investment programme. The concentration
2006 (7.5 per cent of GDP excluding grants), rising sectors identified in the latter and in the PRSP-II are
from 3 per cent in 2005 (4.7 per cent excluding grants). agriculture, energy, road transport, water and sanitation,
474 In addition, this deepening deficit is accompanied by as well as housing, health and education. Further, in
an accumulation (difficult to assess precisely) of non June 2003 the authorities adopted two action plans to
payments and arrears on domestic debt that might improve budget procedures, one for financial
have reached between 0.5 per cent and 1 per cent of management (CFAA) and the other for public
GDP in 2006. procurement (CPAR), both supported by development
partners who made their implementation a condition
In 2007, the overall fiscal deficit is expected to for increased disbursement of public development aid
contract to 4.3 per cent of GDP in spite of increased (PDA) in the form of budget support. However,
expenditure on personnel and investments, the amounts although advances have been made in this domain,
of which voted in the 2007 finance act are much greater reform of budget procedures remains timorous overall,
than those contained in the 2006 finance act (+16.4 per as highlighted by the 2006 public-expenditure review
cent and 6.3 per cent, respectively). This contraction conducted by the World Bank. To the credit of the
is partly explained by a lightening of the burden of the authorities, authorisation of expenditure has now been
public subsidies for the price of electricity and butane. decentralised to six technical ministries, and the
Since the second quarter of 2006 – and belatedly – the spreadsheet of the state’s financial operations is now
increase in energy prices is effectively being passed on produced more rapidly thanks to the computerisation
gradually to the consumer. Since October 2006, the of expenditure management (with the Sigfip system).
price of electricity has been adjusted upwards by 15 per Frameworks for medium-term sector expenditure,
cent per month and the price of butane by 15 CFA though imperfect, have been drawn up for the
francs per month. At the same time, the price structure education, justice, health, environment, agriculture,
of oil products (including gas at the pump) was reviewed livestock and tourism sectors. On the other hand, after-
and is now propped on a new reference market the-fact control of budget execution, whether internal
(Northwest Europe) that is more representative of the (by the audit authority) or external (by parliament),
behaviour of the oil market from which Senegal is remains almost non-existent. For example, never once
supplied. Against this backdrop, the activity of importing has a bill regarding budget rules been submitted to

Senegal
parliament. Moreover, the government has not respected oil and gas prices rose significantly, all the more that
its commitments in this area to development partners. the administered prices for goods sold in shops such
The latter also showed concern over financing outside as butane were not respected. Thus, the price of transport
of normal frameworks (the three-year investment increased by 17.7 per cent during the first nine months
programme, in particular), infrastructure investments of 2006, that of gas by 9 per cent, and that of liquid
and the proliferation of para-governmental bodies fuels by 21.6 per cent. The evolution of prices in 2007
(Apix, Anoci, etc.) that have no clear legal standing and will depend on the cost of energy, but should remain
nonetheless receive budget transfers. Finally, they close to 2 per cent.
regretted that at the end of 2006, the new public-
procurement code had still not been adopted. The weak increase in credits to the economy (3 per
cent) between December 2005 and September 2006
Monetary Policy is partly explained by the gloomy economic
environment.
Senegal belongs to the CFA franc zone and its
monetary policy is thus set by the Central Bank of External Position
West African States (CBWAS). Aside from the
developments in the activity and prices in the WAEMU The problems encountered by the driving forces of
zone, CBWAS decisions are largely influenced by the the Senegalese economy, particularly the sectors that
pegging of the CFA franc to the euro, and thus by contribute significantly to exports (phosphates, fisheries
European Central Bank decisions. In line with the and groundnuts) combined with the rising cost of
tightening of monetary policy in the euro zone since energy imports to further deepen the trade deficit,
end-2005, the CBWAS increased its key interest rates which rose by 127 billion CFA francs over 2005 to reach 475
on 24 August 2006 for the first time since 19.3 per cent of GDP in 2006 (against 15.4 per cent
22 March 2004, bringing its discount rate from 4.5 per in 2005). In fact, exports fell by nearly 5.5 per cent in
cent to 4.75 per cent, and its repurchase rate from 2006, those of ICS plummeting from some 100 billion
4 per cent to 4.25 per cent. CFA francs under normal circumstances to 30 billion
CFA francs. Imports grew by 5.5 per cent in 2006.
The impact of the word increase in energy costs on
inflation in Senegal was contained by public price This deficit in the balance of goods was partly offset
subsidies for electricity and butane. In this environment, by a rise in recorded current transfers, notably private
the rise in the harmonised index of consumer prices ones, of 80 billion CFA francs. In all, the current deficit
should be close to 2 per cent in 2006 (against 1.7 per widened from 8.4 per cent of GDP in 2005 to 12.9 per
cent in 2005), that is, in compliance with the WAEMU cent in 2006. The evolution of Senegal’s current account
convergence-criteria ceiling of 3 per cent. Nonetheless, is a subject of concern. Certainly, the aggravation of
household spending for those most exposed to soaring external imbalances in 2006 was due to a conjunction

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -5.9 -11.8 -12.3 -15.4 -19.3 -17.3 -17.6

Services -0.4 -0.3 -0.3 -0.4 -0.5 -0.4 -0.5
Factor income -1.7 -2.0 -2.0 -1.6 -1.5 -1.4 -1.1
Source: CBWAS data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/488064882125

Senegal
of highly unfavourable factors, specifically detrimental debt relief totalling 1 026 billion CFA francs under the
to the country’s external performance. In 2007, the MDRI. This resulted in its outstanding foreign debt
current deficit could be reduced to around 11 per cent being reduced from 1 855 billion CFA francs at end-
of GDP if ICS exports recover and if oil prices remain 2005 to 860 billion CFA francs in September 2006 (or
at their level of end-2006. The fact remains that Senegal’s around 17.8 per cent of GDP end-2006, against 41 per
trade deficit has more than tripled as a percentage of cent of GDP end-2005).
GDP since the end of the 1990s, a progression that
points to the weak fabric of the local economy, starting Moreover, the country’s financing profile is strongly
with its poor diversification. The sectors that drive concessionary: the average rate of concession of the
Senegalese exports (groundnuts and fisheries) are existing debt stock is close to 33 per cent, in compliance
becoming exhausted and/or are not supported by with the commitments made to development partners;
dynamic international demand. They are thus on average, it is also long-term (29 years) and
confronted with badly positioned world prices characterised by a high average deferral of 7.2 years.
(groundnuts and phosphates). With weak national As such, debt servicing is less than 1 per cent of GDP.
savings, this deterioration also underscores the The sustainability evaluation most recently conducted
importance of the public-investment effort. It is thus by the Word Bank and the International Monetary
imperative that growth relays should be identified that Fund (IMF) was positive, anticipating public debt of
will channel the foreign resources necessary to finance 26 per cent of GDP by 2026, though it stressed the
the country’s development. Recovery of the tourism risks induced by a succession of very large current
sector should be a priority, for example (particularly account deficits.
holiday tourism) while the emergence (already visible)
476 of new activities should be encouraged, in information Relations between Senegal and development
technology, for example. partners are good and the country is the region’s biggest
recipient of PDA ($440 million in 2005) after Ghana.
The current deficit was more than financed by the It has successfully completed the debt discharge process
combination of debt relief, in particular 34 billion under the Heavily Indebted Poor Countries (HIPC)
CFA francs obtained for 2006 under the Multilateral Initiative, having reached its completion point in
Debt Relief Initiative (MDRI), and new public and April 2004. Senegal is no longer under an IMF
private financing. In 2006, net public financing was programme since April 2006. The sluggishness of
272 billion CFA francs, while private financing reforms in some areas, for instance in the area of
amounted to 283 billion CFA francs, 73 billion of transparency in budgetary procedures and public
which was foreign direct investment (FDI). This latter procurement, explains the weakness of budgetary
remains modest as GDP ratio (1.5 per cent), and support to Senegal: it only accounts for 5 per cent of
financing of the large current account deficit is highly PDA allocated to the country (against 25 per cent of
dependent on public development aid: net external that allocated to Ghana, for example). Development
public financing accounted for almost 65 per cent of partners have proven reluctant to increase this volume
the current deficit in 2006. Thus, not only must the rapidly without greater transparency in public finances.
current deficit be reduced, but the entry of foreign For the same reason, the World Bank has delayed the
investors liable to invest should be facilitated by an release of the second phase of a poverty-reduction
improved business environment. budget support, whereas the improvement of budgetary
procedures will certainly be a key element in a non-
In the context of weak FDI, the existence of a large financial monitoring arrangement that the authorities
current account deficit could lead to the country’s debt are seeking to negotiate with the IMF at the start of
dynamics’ being questioned again in the future. On this 2007. This arrangement, an IMF Policy Support
subject, the improvements recorded in the past years Instrument, is important because, at end-2006, several
have been spectacular: in 2006, Senegal benefited from bilateral donors held it as a condition for disbursing

Senegal

90
80
70
60
50
40
30
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF and authors’ calculations. 477

http://dx.doi.org/10.1787/861271227242
funds. In parallel, the review of 2006 public expenditure The privatisation process in Senegal was initiated
has highlighted the very poor co-ordination of immediately following the 1994 devaluation and in
development partners in Senegal. While unified action 2005, practically all of the large transactions had been
frameworks exist (as for the water domain) or are being realised. The last of these, Sonacos, which became
developed (for education), they are scarce and only Suneor in January 2007, launched operations as a
one project out of four financed by PDA is jointly private enterprise in March 2005. Only the privatisation
financed. Progress must also be made by development of Senelec – scheduled for 2006 – is unresolved having
partners in terms of forecasting the resources put at the been postponed owing to difficulties in the local energy
disposal of the Senegalese authorities to enable better sector.
medium-term budget programming.
Senelec, which was privatised in 1999 and
Structural Issues renationalised in 2000, is currently suffering from
serious cash-flow problems in large part due to the
Recent Developments increase in the price of oil and the impossibility of
passing it all on to consumers. This situation has resulted
Senegal is going through a very dynamic period in serious electricity-supply problems in Dakar and
regarding structural reforms. All the same, even if led to frequent load sheddings throughout 2006, which
improvements have taken place, notably in the seriously impaired the industrial fabric and led to
business environment and infrastructure, the process significant interruptions in production. In October
is proving to be more-or-less chaotic. The pre-electoral 2006, the managing director of Senelec resigned, and
climate, combined with the economic difficulties it is expected that relations between the new
the country is confronting, has certainly contributed management and private suppliers (including GTI
to this situation. with whom Senelec has accumulated debts) will

Senegal
improve, in keeping with the sector policy promised the construction of roads linking Dakar and Bamako
by the government. The Senelec crisis also affected Sar, (Mali) and Senegal to Guinea.
charged with importing, processing and distributing
oil products in the country. Senelec’s arrears, the rising The business environment is perceived today as one
price of crude oil and a badly adjusted oil-price structure of the chief obstacles to the development of the
all explain why Sar could not be supplied with raw Senegalese private sector, in particular with continued
materials and had to cease its refining activities (which administrative obstacles to the creation and operation
were producing a deficit) for ten months, causing a of enterprises, the slowness and uncertainties of legal
severe shortage of gasoline and butane throughout the and judicial procedures, and the difficulties in access
country. Against this background, Senelec received to financing and real estate. The latter is still lacking
temporary permission to buy refined gasoline directly a solid legal framework. Improvements have certainly
on international markets. been observed for some of the indicators of the World
Bank survey, Doing Business, particularly for closing
Furthermore, access to energy services remains a business and paying taxes. The enterprise tax rate has
problem in Senegal despite an increasing rate of rural thus been revised from 33 per cent to 25 per cent.
electrification, which rose from 6 per cent in 2000 to Senegal’s ranking, however, remains disappointing
12.5 per cent in 2004. The forecast for the coming three (146 out of 175 countries ranked). With a view to
years is for production capacity to expand, with increased improving the business environment, a new
production at the Manatali plant and the construction government-contracting code – subjecting all
of two new power stations at Fellou and Gouna. The government contracts to rules of transparency and
Islamic Development Bank has also signed an agreement instituting tender bidding for every contract – has
478 worth 19 billion CFA francs (nearly EUR 29 million) reached the signature stage by the president of the
for the construction of a new 60 megawatt power republic. It follows up on the code promulgated in 2002
station in Dakar. but its content – completed after eight years of
work – was already outdated on publication. Hence,
In 2006, Senegal launched a series of large public and given the dissatisfaction of the private sector and
works in transport, notably on major roads leading civil society with its anti-corruption measures, its
into the capital. The widening, with new intersection- review was initiated. This led to concerted consultation
free road junctions, of the VDN (northern distribution with all concerned parties, including partners such as
road), the major road linking Dakar to its suburbs, is the World Bank and the Agence Française de
planned for the OIC in 2008. Other works have been Développement (AFD). Approval of the code remains
scheduled to make the RN 1 (called “la Pénétrante”), one of the prerequisites for any agreement with the IMF
the sole road giving access to the Dakar peninsula, into and the World Bank.
a widened toll freeway. It has also been planned to
renew the access roads to Dakar’s new districts, The Senegalese financial system exhibited its
particularly Ngor, Yoff and the Almadies. These works weakness in 2006 following the cash-flow problems in
did not fail to affect the life of Dakar residents by the country’s largest enterprises, and, as a result, the
rendering traffic around the city very difficult and magnitude of bad bank debts. The situation was
hindering life in the capital, where 80 per cent of remedied near the end of 2006, when the government
economic activity is concentrated. The second phase began to reimburse Senelec’s debts and guaranteed
of the urban mobility programme, Pamu-II, will be ICS’s bank loans. Otherwise, the financial system
discussed in 2007 and implemented in 2008. It sets out remains characterised by the abundance of liquidities
the reactivation of Dakar’s rail transport, linking the and has grown with three new banks that began
capital to its suburbs (the “blue train”) as well as the operations in 2006. Still, despite the expansion of the
development of public transport. The construction of financial system, access to credit remains restricted,
a new international airport is still on the agenda, as is especially for small enterprises and the informal sector.

Senegal
Long-term credit still accounts for only 5 per cent of the private sector, particularly in terms of maintenance
all credits to the economy. and repairs. The stated aim is to obtain by 2015 a
coverage rate of 82 per cent and individual daily
Access to Drinking Water and Sanitation consumption of 35 litres.
Senegal has large water resources (surface and The sub-sector of urban sanitation, previously the
groundwater) but it must address a distribution problem, domain of the national water enterprise, Société
as these resources are either far from the large centres nationale d’exploitation des eaux du Sénégal (Sonees),
of consumption or are difficult to harness to meet is now managed by a public independent body, the
population needs. Thus, water management is featured Office national de l’assainissement du Sénégal (Onas),
amongst the key challenges for the country and for its that was specifically set up for this purpose by a 1996
strategy of human and economic development. reform. Before the Onas, only five cities possessed a
Improving access to water has been a government priority sanitation system; there was no clear perspective as to
since 1995, when the strategic orientations were how the sector would develop, and its financial viability
formulated and included in the first PRSP of 2002. was weak and based on resources that were largely
insufficiently for its needs. Since the institution of the
In line with the poverty reduction strategy, the Onas, the situation has improved significantly in terms
government’s sector policy is targeted at improving the of expanding the network, renewing equipment and
access to water of the poorest. It has set up a system of putting in place household connections (with
differentiated pricing for water consumption through 63 000 individual connections set up in the peri-urban
individual connections as well as a huge programme zones). Still, huge financial problems remain: the
of social connections. Between 1996 and 2005, the proportion of water fees devoted to financing Onas 479
government put up 105 000 individual social barely covers 65 per cent of its needs.
connections in the peri-urban zones of Dakar. The aim
is for 88 per cent of the population of Dakar and 79 per The ongoing and extended effort to improve
cent of households in other towns to be equipped with coverage, which is based on exemplary co-ordination
an individual connection by 2015. Nonetheless, 24 per between the various agencies, clear aims, a long-term
cent of the inhabitants of Dakar and 43 per cent of the perspective and a successful public-private partnership,
residents of other urban centres still only have access has enabled the country to post a national access rate
to standpipes, where the price of water is as much as of 70 per cent at the beginning of 2007, one of the
four times higher than with an individual connection. highest in sub-Saharan Africa. This gives hope that
In the poor districts of Dakar, water consumption is Senegal will reach the MDG for water by 2015.
no more than 30 litres per person per day, or half of Nonetheless, disparities between urban and rural areas
the average consumption of Dakar as a whole. persist, with respective access rates of 90 per cent and
64 per cent in 2004. This variation is related to the
In rural areas, the Pepam programme (national overwhelmingly urban focus of the sector reform. As
drinking water and sanitation programme), planned to a result, in 2004, nearly all of the urban population had
massively expand as from 2005 a pilot programme for access to a source of drinking water, in 71 per cent of
the management of rural motorised wells (Rogefor) cases through individual connections (76 per cent for
that was initially implemented between 1996 and 2004 Dakar) and for the rest through standpipes. In contrast,
with financial assistance of the AFD. The programme the development of the rural sector is the subject of
focuses on collective wells, each of which will be capable neither formal plan and schedule nor strategic vision.
of supplying several villages or a total of 3 000 people. Thus, 64 per cent of the rural population had access
It also envisages the appropriation of the management to drinking water in 2004, but only 10 per cent had
and maintenance of water points by local communities, an individual connection, the rest being supplied by
the withdrawal of the state and an increasing role for standpipes and protected wells. Consumption per

Senegal
Successful Reform of the Water Sector in Urban Senegal
The deep financial crisis of the water enterprise, the Société nationale d’exploitation des eaux du Sénégal
(Sonees), provoked by excessively low prices and a weak rate of invoice recovery, was the impetus behind
the 1995 reform. This entailed a vast institutional change, separating the activities of sanitation and drinking-
water supply, and establishing a partnership amongst the state, a public enterprise, the Société nationale des
eaux du Sénégal (Sones), and a private enterprise, the Sénégalaise des eaux (SDE), as well as the implementation
of a succession of investment programmes. The financing of new infrastructure was covered for the most
part by development partners, under the water-sector project (1995/2001) and its successor, the long-term
water-sector project (2002/07). In 2005, a new sector policy and a new investment programme (of
241.4 billion CFA francs) were set out under the Programme national d’eau potable et d’assainissement du
millénaire (Pepam). They cover the renewal of the network and the construction of social connections, as
well as the development of a new series of so-called “second generation” institutional reforms, aiming to
address the challenges raised by the sanitation and expansion of Dakar.
From the institutional perspective, the law of 7 April 1995 replaced the Sonees with two separate
enterprises, governed by two different types of contracts: on the one hand, the Sones is a public enterprise
linked to the state by a concession contract, the prerogatives of which are approving three-year investment
programmes and to be the contracting authority for the new investments; on the other hand, the SDE is a
private enterprise (belonging to the French group Saur) charged with the technical and commercial
exploitation of the network through a contract with the state and the Sones. This contract is rounded out
by a performance contract with the Sones. Given its success over the last ten years, the management contract
480
with SDE was renewed in 2006 for five years, with the goals of financial stability and improving access to
water for the poorest.
The success of this public-private partnership can be primarily attributed to three factors: the choice of
a suitable institutional framework; the introduction of appropriate incentives; and the important role played
by the state, which was able to gain the confidence of its partners. The SDE invests in renewing the
distribution network under its contractual obligations, but it is also motivated to do so by the higher profits
the enterprise will earn from increased user consumption. The main actors were also careful to establish
good dialogue, with an implementation control committee conducting a biannual review of contracts based
on an assessment of the SDE’s performance. This assessment is constructed from 18 indicators set out in
the performance contract between SDE and Sones. The fulfilment (or non-fulfilment) of objectives fixed
for each of these main indicators entails financial rewards or sanctions for the enterprise (a type of bonus-
surcharge system). This system has brought about an improvement in the efficiency of SDE, which increased
its client base by 69 per cent between 1996 and 2005. At the start of 2007, it posted a proportion of water
produced/volume sold of 80.5 per cent (68.2 per cent in 1996), a network profitability rate of 80 per cent
(the target is 85 per cent) and financial balance since 2003. Finally, the state was careful to take a strong
role in regulation and co-ordination and honoured it commitments, particularly in settling invoices, enabling
the SDE to have a 98.3 per cent invoice recovery rate. Furthermore, the administration was care to apply
necessary and planned rate adjustments set out in the contract between it and the Sones.
A series of new measures expected under Pepam, christened “second generation reforms”, are being
examined. These include the development of organisation and institutional frameworks for water and
sanitation, the implementation of a new pricing system that would increase the resources devoted to sanitation,
and the search for new water-supply sources for the principal urban centres to replace the costly exploitation
of Lake Guiers.

Senegal
person and per day is 25 litres, below the level government, and it occupies a central position in the
recommended by the World Health Organisation. Pepam. This increased interest has been formalised by
the institution of a ministry of sanitation and by the
With access to sanitation in the order of 56 per cent allocation of greater budgetary resources to investment
in urban areas in 2004, the goal of 78 per cent coverage expenditure. A price study is also being carried out
by 2015 appears difficult to achieve. In rural areas, under the second generation reforms, a sanitation code
28 per cent of the population were without access to is being drafted and a performance contract between
sanitation infrastructure in 2004; 40 per cent had access the Onas and the state being drawn up. The Pepam
to simple latrines, and barely 17 per cent to ventilated strategy in urban areas is to focus on the construction
latrines. The goal by 2015 is to raise this figure to of individual rather than collective connections, these
50 per cent. latter being more costly and dependent on an urban
plan. In rural zones, the programme allows for the
In view of the enormous lag developed in the sub- construction of 355 000 independent household
sector, sanitation has become a priority for the connections and 3 360 public lavatories.
The Differential Pricing System
The pricing system put in place following the reform is differentiated, with prices varying according to
the capacity of users to pay. In fact, a single category of user is the net contributor to the system, that of “non-
household” users (public administrations, schools, industries, etc.), which consume 27 per cent of the overall
volume and provide 41 per cent of the revenue. In contrast, market gardeners are highly subsidised, and there 481
is a very low social price for household users for all consumption equal to or less than 20 m3. Overall, the
prices applied reflect the reality of the cost of service, permitting the water sector to break even and making
Senegal an example for other African countries. Prices have risen by 3 per cent each year and have been frozen
since 2003, but a review process is underway with a view to raising prices beginning in 2008.
Political Context and Human 2006 in order to combine them with the presidential
Resources Development election elicited great protest. This date change,
officially argued by the desire to reallocate the funds
Abdoulaye Wade was re-elected as president of earmarked for the organisation of the elections to
Senegal in the first round of elections in February compensate the victims of the 2005 floods, was
2007. While it would appear since the 2000 election perceived by part of the population as a political
that democratic change-over is an accepted part of manoeuvre. Government detractors argued that the
Senegalese society, the political climate hardened real motive of this decision was to allow the PDS to
considerably in the months preceding the election. emerge from a period rendered difficult by internal
Significant tension followed several episodes of dissension and by the negative impact on the
violence, threats and arrests against various political government of problems in the industrial and energy
opponents, including the principal rival of the sectors. At the beginning of 2007, the legislative
president, the former prime minister and mayor of elections were again postponed without further
Thiès, Idrissa Seck, now president of the Front Pour clarification, following a High Court ruling striking
le Progrès et la Justice. Further, the decision of the down a presidential decree regarding the distribution
party in power, the Parti Démocratique Sénégalais of local members of parliament, which had been
(PDS) to postpone the legislative elections of April contested by the opposition .

Senegal
Despite a 2004 agreement signed between the The government approved the new PRSP for 2006-
government and separatist rebels, the Mouvement des 10, which was strengthened by the recommendations
Forces Démocratiques de Casamance (MFDC), peace of work commissions responsible for progress and mid-
has not yet been consolidated in Casamance and awaited course evaluation reports of the previous PRSP. Four
negotiations have twice been postponed. In August strategy lines were decided. The first, already included
2006, the Senegalese army launched a military campaign in the I-PRSP, focuses on the generation of wealth and
against the rebels of Salif Sadio, the head of the MFDC, growth in favour of the poor, and includes the AGS.
leading to new confrontations in the region. Occasional The second focuses on accelerating access to basic
clashes continue as well as refugee movements to services and reflects the priorities and objectives already
neighbouring countries, particularly Gambia. The included in the I-PRSP. The third aims at promoting
president of the regional council of Ziguinchor, Oumar social protection, risk prevention and management,
Lamine Badji, was murdered by unknown assailants in and replaces the strategy line of improving the lives of
December 2006, in the middle of Aïd el-Kebir, the the vulnerable sectors of the population. The last focuses
Muslim feast of sacrifice. on good governance and on decentralised and
participative development.
Senegal has historically experienced large waves of
emigration abroad, particularly to Europe. On this Although public expenditure devoted to social
subject, 2006 was an exceptional year with this sectors, particularly education and health, is sizeable
movement taking on unprecedented proportions: the (50 per cent of the state budget according to the new
number of illegal immigrants to the Canary Islands PRSP), its effectiveness remains weak judging by the
reached 30 000, sparking diplomatic tension with Spain, slow progress that has been recorded. Above all, these
482 which was resolved by the repatriation of several hundred sectors appear crippled by the limited and inadequate
emigrants. In response, the Senegalese government quality of available human resources. Amongst other
announced the June 2006 launch of the Reva project, things, this results in worsening disparities between
while the new PRSP also includes the development of rural and urban areas in access to social services.
income-generating activities and employment
opportunities in small urban centres. It remains to be With a 37.8 per cent literacy rate amongst adults,
seen whether these activities will be able to offer a real the majority of the Senegalese population is still
alternative for young Senegalese prepared to undertake illiterate. Resources allocated to education have
a highly dangerous journey towards a hypothetical better continued to increase to the point of reaching, in
future. In addition to the high price paid in human lives, 2005, almost 40 per cent of the state budget. As a
this exodus seriously risks hampering the development result of this effort, undeniable progress has been
of a country already strongly limited by human resources made, particularly in primary education. Between
in key sectors. On the other hand, the flow of emigrant 2000 and 2005, the number of functional schools
workers represents an essential source of funding through grew from 4 751 to 6 460, which is a 36 per cent
foreign remittances. increase, and the gross enrolment rate rose constantly,
from 69.4 per cent to 82.5 per cent for the same
Living conditions remain very hard in Senegal, period. Still, these improvements remain inadequate:
where poverty is endemic and affects 48.5 per cent of access to teaching is difficult for a great majority of
the population (62.5 per cent in rural areas). Despite the population owing to the distance to schools, the
a sustained pace, growth remains insufficient for high cost of schooling and problems in obtaining the
reaching the MDG of cutting the poverty rate in half school material necessary for learning. The quality of
by 2015. And, although the incidence of poverty teaching remains mediocre due to the lack of qualified
decreased by 16 points between 1994 and 2004, personnel and their insufficient supply in light of the
inequalities have deepened at the same time that progress education demand, as attested to by the very high
in social indicators is proving slow and inadequate. number (55) of pupils per teacher. This is certainly the

Senegal
source of a high primary-school repeater rate (14 per of health and social infrastructure and by the inadequacy
cent in 2005), the low enrolment rates (less than the of the services offered. Health workers are very poorly
average for sub-Saharan Africa) and a significant drop- distributed throughout the country, with doctors
out rate (46.1 per cent). unwilling to leave the capital or other major urban
areas. In this context, access to care in isolated areas and
Since 2000, the government’s sector development for the poorest remains difficult: the Senegalese
strategy for education is part of a ten-year education household survey Esam-II shows that only 57.4 per cent
and training programme called the Programme of the population is located less than 30 minutes from
Décennal de l’Education et de la Formation, which is a health service.
part of the poverty-reduction strategy. In the framework
of the MDGs and the 2003 Rome Declaration on the Despite everything, progress has been made these
effectiveness of aid, initiatives have been put in place past few years in the area of maternal and child health.
to improve the sector strategy and to initiate true co- According to the 2005 demographic and social survey,
operation between the government and its partners in EDS-IV, in 2004/05, 93 per cent of pregnant women
this domain. In 2005, for the first time, the government received care during their pregnancy, while this rate was
drew up a medium-term sector expenditure framework 87.5 per cent in 2001/02. The maternal mortality rate
called the Cadre de dépenses sectorielles de moyen fell from 540 per 100 000 live births to 434 per 100 000
terme. For their part, development partners are focusing between 1992 and 2004 and infant mortality fell from
on establishing with the relevant ministries a framework 68 to 61 per thousand live births. Within the expanded
for co-operation and co-ordination including, amongst vaccination programme, the rate of vaccination against
other things, the institution of a joint fund to ensure the main childhood diseases grew from 44.7 per cent
the consistency of initiatives in which several in 2004 to 80 per cent in 2003. 483
development partners are associated. In this context,
and following the assessment of the government sector Senegal has an HIV/AIDS prevalence rate of 0.7 per
strategy in 2006, the country was judged eligible for cent (EDS-IV), one of the lowest in sub-Saharan Africa.
the Education for All – Fast Track Initiative, which This was made possible by an early and effective
aims at fulfilling the MDGs in terms of access to prevention strategy, which from the beginning of the
primary school and universal completion of elementary epidemic was careful to get relays involved, such as
schooling by 2015. traditional healers, within the different communities.
In all likelihood, this measure contained both the spread
In the health sector, resources are increasing and in of the virus as well as discrimination against HIV-
2005 these constituted 10 per cent of the national positive individuals. To confront the threat of a
budget. Though these resources were employed to pandemic, the government has facilitated access to
recruit qualified personnel (515 officers in 2005), the antiretroviral treatment since 2003.
sector remains highly constrained by the insufficiency

.
South Africa
Pretoria
key figures
South Africa
T HE MOST RECENT HISTORY OF S OUTH A FRICA 0.4 per cent in the following years. The strong growth
highlights both the buoyancy of its economic is also leading to increased imports and a widening
performance and the increasingly risky environment current account deficit, estimated at 4.6 per cent of GDP
with which it is confronted. By South African standards, in 2006.
the country experienced high real GDP growth in 2005
and 2006 at around 5 per cent, fuelled mainly by The current account
Steady growth based on internal
booming consumption and vigorous investment. The deficit mostly reflects
demand in 2006 caused a current-
emergence of a black middle class, boosted by the Black structural factors which
account deficit, underlining the
Economic Empowerment (BEE) measures, and are limiting export
need to hasten structural reform.
increased social expenditures are stimulating private competitiveness and
consumption and, in turn, the services and construction constitute a major challenge for policy makers. Inputs
sectors. By contrast, gold mining and agriculture are are costly, especially in telecoms and transport, adversely
largely underperforming owing to structural bottlenecks affecting all other industries. Poverty remains very high,
and diminishing prospects. As a result of growing as do crime figures and HIV/AIDS statistics. Although
incomes, South Africa is experiencing significant tax declining, unemployment remains at around 26 per cent
overruns, with the fiscal deficit shrinking to a mere (and close to 40 per cent if the discouraged unemployed
0.3 per cent of GDP in 2005/06 and an estimated are included). 487

http://dx.doi.org/10.1787/645266545018

South Africa
In May and June 2006, the turbulence of emerging The mining sector contracted in the first nine
financial markets affected South Africa, pushing the rand months of 2006 by 3.4 per cent after recording a
to a depreciation of some 20 per cent. South Africa was lacklustre growth rate of 2.3 per cent in 2005. In the
one of the most impacted emerging markets due to its same year, gold production receded by 13 per cent to
large current account deficit and, possibly, perceived, 297.3 tons, its lowest level since 1923. These poor
heightened political risk. The domestic financial system performances point to the structural difficulties of a
was not damaged, however, highlighting the increased sector that remains vital to the South African economy:
resiliency of the South African economy. The South both directly (7.3 per cent of GDP, 6.2 per cent of
African Reserve Bank (SARB) and the fiscal authorities non-agricultural formal sector and 30 per cent of exports
are working together to dampen domestic demand. of goods) and through major induced and multiplier
The SARB raised interest rates by 200 basis points in effects. The mining industry undoubtedly suffered
the last six months of 2006 while the government is from the appreciation of the rand against the US dollar
keeping expenditure growth under control. The up to July 2005 but it was subsequently unable to reap
government is making some efforts to tackle structural the benefits of higher rand-denominated metal prices
bottlenecks: the Accelerated and Shared Growth (which rose 66 per cent between July 2005 and June
Initiative for South Africa (ASGISA) programme is 2006) and, in particular, a bull gold market. The
aimed at identifying and remedying the binding industry reported a sharp 32.7 per cent decline in fixed
structural constraints to long-run growth. investment in real terms between early 2004 and early
2006. As a consequence, South Africa slipped from
The short term outlook continues to be largely fourth to seventh position in country rankings for
positive, with investment, both public and private, exploration spending. The internal capital investment
488 expected to replace consumption as the engine of growth. survey of the South African Chamber of Mines points
Growth rates are therefore expected to remain high at to red tape and regulatory uncertainties, associated in
around 4.5 per cent in 2007 and 2008. The outlook particular with the Mining Charter, Royalty Bill, legal
could be clouded, however, by international risks titles and mining prospecting rights, as the main
associated with rising interest rates in the United States, constraints on mining activity. The Chamber estimates
fresh oil price increases, a downturn in raw materials that these constraints are responsible for a ZAR
markets and domestic uncertainty regarding the 10 billion annual reduction in capital investment in
succession of President Thabo Mbeki (selection of the mining. The sector is also confronted with constraints
next ANC president is scheduled for the end of 2007). in rail and port capacity and rising water and transport
costs. However, the comprehensive restructuring of
the industry carried out in recent years and rising
Recent Economic Developments international prices are expected to result in a recovery
in production in 2007 and beyond.
In 2006, real GDP growth remained at around
5 per cent after 5.1 per cent in 2005. Growth was led The labour-intensive construction sector showed
by domestic demand-driven sectors (construction, 13.2 per cent growth in the first three quarters of 2006
manufacturing and services), while export-oriented and reported a 22 per cent increase in employment,
sectors (agriculture, mining) lagged behind. equivalent to 87 000 new jobs. Manufacturing
experienced a 4.2 per cent growth in the nine months
The primary sector was a drag on growth in the first to September 2006. The highest rate of manufacturing
three quarters of 2006. Agricultural output fell by capacity utilisation in 35 years was reported in June 2006
14.9 per cent over the period due to low crop prices, at 86.3 per cent, while the Investec Purchasing Managers
notably of maize. However, a rebound in food prices Index (PMI), which measures confidence in the
in the second half of 2006 helped reinvigorate manufacturing sector, reached a record high in July
production in late 2006. 2006. Similarly, services benefited from vibrant domestic

South Africa

http://dx.doi.org/10.1787/247765010430
demand, growing 5.9 per cent over the first three vitality of consumption. Targeting a lucrative and
quarters of 2006. As a result of sustained vigorous vibrant domestic market, cash-flush local corporations
growth, services contributed 66.4 per cent of GDP in have undertaken large fixed investments, supplemented
2005 compared to 60 per cent in 1994. by rising public investment. Finally, domestic demand
has been fuelled by an accommodating monetary policy
Following the weakening of the rand and interest and strong credit expansion. Inexpensive credit allowed
rate hikes in 2006, a rebalancing of growth in favour household consumption to exceed disposable income:
of export-oriented manufacturing industries and away 2006 marked the first episode of “dissaving” by South
from domestic-demand-driven sectors is anticipated African households since 1984.
in 2007. On the other hand, import-competing 489
domestic industries should remain dynamic thanks to Overall, South Africa’s national savings rate fell to
the delayed effect of depreciation of the rand. a historical low of 13 per cent in first quarter 2006,
All the components of domestic demand proved which was reflected in a dramatic widening of the
vigorous in 2006 with real increases in final consumption current account deficit to 6.1 per cent of GDP in the
expenditure by households and government of 4.2 per first quarter – its highest level since 1994 – and 4.6 per
cent and 7.2 per cent respectively and a 10.6 per cent cent over the year as a whole. The strength of the rand
jump in gross capital formation. As a result, gross fixed up to mid-2006 did not help exports and undoubtedly
investment reached an all-time high of 18.7 per cent contributed to this deficit.
of GDP in the third quarter of 2006, up from 15 per
cent of GDP in 2002. Household consumption has been Monetary tightening in the second half of 2006,
boosted by higher real disposable income and along with depreciation of the rand and rising inflation
outstanding consumer confidence: the FNB/BER should dampen consumer spending, especially for
Consumer Confidence Index registered the longest durables and semi-durables which are very currency- and
continuous period – 10 quarters – of positive consumer interest rate-sensitive. Combined with the prudent
expectations since 1994. Confidence and consumer medium-term fiscal strategy unveiled in October 2006,
spending have been supported by subdued inflation and these factors should help narrow the current account
a strong rand. They have also been bolstered by a 6 per deficit. Yet, the latter is expected to remain large, between
cent increase in private sector real wages in 2005, 4.6 and 5 per cent of GDP, as investment continues to
substantial personal income tax relief over the past five be buoyant over the next four to five years. Investment
years, rising government transfers, and a 5 per cent is forecast to expand by around 10 per cent annually
increase in employment since the beginning of 2005, under the impact of preparations for the 2010 FIFA
equivalent to almost 350 000 jobs. The emergence of World Cup and large-scale infrastructure and social
a growing black middle class, aided by black project spending by the government and state-owned
empowerment programmes, also contributed to the enterprises such as Transnet and Eskom. These public

South Africa

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 5.8 4.9 15.0 12.0 12.0
Private 11.0 12.9 9.0 9.0 9.0
Consumption 82.1 83.7 4.9 4.2 4.5

Public 18.8 20.2 7.2 5.0 5.0
Private 63.3 63.5 4.2 3.9 4.3
External sector 1.1 -1.5

Exports 25.7 27.1 2.2 2.3 2.1
Imports -24.5 -28.6 5.3 4.9 6.1
Source: Statistics South Africa data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/388260456467
investment programmes are expected in turn to leverage limited competition, explains the high costs of services,
complementary private sector investments. Although particularly transport and telecommunications, and of
investment constitutes a small share of GDP and exhibits intermediate inputs, in steel and chemicals for instance.
lower import content than consumption, the import
leakage of large investment programmes such as those The ASGISA initiative aims to address these
490 planned by Eskom and Transnet is far from negligible. problems and to lift average growth to 6 per cent over
The Industrial Development Corporation estimates it the 2010-14 period. It is estimated that achieving this
at ZAR 53 billion out of overall capital outlays totalling target will require an increase in investment to 25 per
ZAR 134 billion. cent of GDP by 2014. Based on a realistic scenario of
investment growth of 10 per cent, however, reaching
The widening of the current account deficit in an investment ratio of over 22 per cent by then promises
2006 underlines some of the structural weaknesses of to be a challenge and, in the period to 2010, growth
the South African economy. Growth in South Africa looks unlikely to exceed 5 per cent.
is limited by supply-side bottlenecks and external
constraints. Potential growth and export orientation has
admittedly increased over the last five years, owing to Macroeconomic Policies
improved macroeconomic policies, trade liberalisation
and structural reforms, including the restructuring of Fiscal Policy
the manufacturing sector since 2003. Yet, potential
growth in South Africa is estimated at only four to Prudent policies have resulted in a dramatic
4.5 per cent, and, although up from about 3 per cent consolidation of South Africa’s fiscal position since
in the late 1990s, is still below the level needed to make 1996. Budget deficits have recently hovered in a range
a major dent in poverty and unemployment. between 1.5 per cent of GDP in 2004/05 and 0.4 per
cent in 2006/07, while national government debt has
Investment rates of below 20 per cent of GDP, been scaled back from 45.3 per cent of GDP in late
themselves attributable to insufficient savings and 2001 to 34.8 per cent in the second quarter of 2006.
foreign direct investment, are low by emerging market The country now enjoys a good international credit
economies’ standards. As a result, the availability of standing: its long-term foreign currency debt is rated
critical infrastructure is insufficient and the quality of investment grade by S&Ps (BBB+), Moody’s (Baa1) and
service is poor. Inadequate investment, along with Fitch (BBB+). The risk premium on South Africa’s

South Africa

1998/99 2003/04 2004/05 2005/06 2006/07(e) 2007/08(p) 2008/09(p)
Tax revenue 24.0 23.3 24.6 25.8 25.7 25.7 25.7
Consolidated expenditureab 28.5 27.7 27.8 29.1 29.0 28.8 28.7

Interest 5.6 3.7 3.5 3.3 3.0 2.8 2.6
Consolidated balanceb -3.9 -3.9 -2.7 -2.8 -2.8 -2.6 -2.5

Main budget balance -2.7 -2.3 -1.5 -0.3 -0.4 -0.4 -0.5

b. Includes expenditure by national and provincial government, social security funds and selected public entities.
Source: : South African National Treasury data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/706773153276
long term foreign currency debt reached an all time low years. Despite tax relief for individuals and a tax
68 basis points in February 2006 and widened to a mere amnesty for small businesses, the tax revenue to GDP
115 basis points in July 2006, following the May-June ratio has risen from 21.2 per cent in 1996/97 to
2006 turbulence in emerging markets. This risk 26.2 per cent in 2006/07. The cyclical component of
premium narrowed again to 98bps in October 2006. this rise in tax revenues is fairly small, according to
In short, the government has a significant margin for the IMF2. At the same time, expenditures (capital 491
increasing public expenditures. outlays included) turned out to be broadly in line
with the initial budget forecast.
As in 2004/05, the budget deficit turned out to be
far lower in 2005/06 at 0.3 per cent of GDP than the For the future, the government is aiming to increase
expected 3.5 per cent of GDP. The situation is likely the share of investment in public expenditure. Public
to repeat itself in the following years with a likely investment is forecast to rise by 9.8 per cent annually
closing of the fiscal deficit. from 2005 to 2009, so as to prepare the 2010 FIFA
World Cup, improve public service delivery and
The unexpectedly low deficit in 2006 was due to achieve the priorities set out in the ASGISA. Capital
very strong revenue growth of 13.5 per cent in 2006, outlays are set to reach 7.2 per cent of total expenditure
far above anticipated 4.5 per cent growth, and almost and 2.2 per cent of GDP by 2009/10 compared to
double GDP growth. Indirect taxes (VAT in particular) 4.5 per cent and 1.2 per cent respectively in 2004/05.
grew 14.5 per cent, while personal income and Priority sectors are public works, housing, water,
corporate tax receipts showed an 18.1 per cent increase. education and health services (including a hospital
The surge in tax revenues has been driven by dynamic revitalisation programme). They will be supplemented
domestic demand but also by structural factors1, by massive investment planned by Eskom in electricity
namely the continued broadening of the tax base, generation and electrification, as well as significant
partly attributable to a progressing formalisation of spending by Transnet, aimed at improving the quality
the economy, and the strong tax compliance efforts and efficiency of the country’s rail network, major
made by the South African Revenue Services in recent ports and harbours.
1. Tax revenues in South Africa have been consistently higher than expected by government in recent years.
2. 'South Africa: Selected Issues', September 2006, IMF Country Report No. 06/328

South Africa
While increasing the share of capital expenditure, result of labour-market pressures, growth in unit labour
the government aims to keep total expenditure below costs accelerated in the formal non-agricultural sector
30 per cent of GDP, by restraining the growth of current to 7.6 per cent in the year to the first quarter 2006. In
expenditure in line with GDP. In particular, the wage addition, rising prices of imported goods (oil in
bill and transfers to households are expected to remain particular), transport and food, at a rate well above
stable as a share of GDP. The roll-out of the government 6 per cent, drove the overall inflation index up. The
social grant programme is nearing completion and its rise in the price of inputs, energy and labour were easily
impact on the budget is flattening out. There are no clear passed on to consumers.
indications that the initiative will be extended further
as the government intends to avoid the emergence of a The growth in credit to the private sector has been
dependency culture and to prevent the financial cost of consistently higher than 20 per cent since January 2006
the scheme from spinning out of control. In other and reached a record 25.3 per cent in September 2006,
words, spending plans by the fiscal authorities continue as the SARB accommodated the increase in money
to strike a sensible balance between fiscal stability and demand accompanying growing nominal GDP.
social objectives. This strategy should result in narrow Previously disadvantaged sections of the population
fiscal gaps over the period to 2009-10 – no higher than which were entering the credit market for the first time
0.5 per cent of GDP. Yet fiscal policy remains in 2005 and 2006 largely accounted for the sharp
expansionary when cyclically adjusted, with a structural increase in credits. Monetary policy was the most
deficit estimated by the IMF at 2 per cent of GDP. expansionary since 1994: from April 2005 to June
2006, the repurchase rate of the central bank stood at
The authorities make the case for a prudent fiscal an all-time low 7 per cent.
492 stance by stressing that the scope for increasing tax
revenues further is limited because all feasible measures The inflationary pressures were compounded by the
to improve tax compliance have already been sharp 20.6 per cent depreciation of the rand between
undertaken. Cautious expenditures plans are also April and October 2006 and ensuing pass-through
underpinned by a realistic assessment of South Africa‘s effects. Global factors, such as the tightening of US
capacity for absorption, skill constraints and limited monetary policy and concerns about a drop in
administrative capacities at the municipal and provincial international investors’ appetite for emerging markets
levels. The government also stresses the need for assets played a role in the weakness of the rand. The
coordinating fiscal and monetary policies to relieve rand proved particularly vulnerable to the sell-off of
pressure on the current account, slow growth to its emerging markets’ assets due to very large current
potential rate and dampen inflation. account deficits and declining prices for key South
African export commodities in 2006. However, the
Monetary Policy rand bounced back later in the year to such an extent
that overall depreciation in 2006 was only 8.6 per cent.
Monetary authorities were confronted with rising
inflation in 2006: in September 2006, the Consumer The challenge now faced by the monetary authorities
Price Index (CPIX) inflation rate reached 5.1 per cent – is to keep inflation in check, to engineer a soft landing
its highest level in two years – and averaged 4.9 per of the economy and in due course to narrow the current
cent over 2006 as a whole. Inflation could again be at account deficit and reduce the rand’s instability.
the top of the targeted 3 to 6 per cent band in 2007, Achieving these objectives requires that the SARB tread
averaging out at about 5 per cent. The increase in a fine line between a too soft monetary response and
inflation is attributable largely to strong domestic the risk of a hard landing. In other words, the tightening
demand resulting in high capacity utilisation (86.2 per of the monetary stance must dampen domestic demand
cent in June 2006, 88.6 per cent in durable goods) while avoiding a crash on the property market, which
and in growth exceeding its long term potential. As a is vulnerable to interest rate swings due to a high volume

South Africa
of mortgage debt at variable interest rates. Also, the Development Community (SADC) – European Union
central bank intends to dampen damaging interest- (EU) EPA negotiations (it had previously been only an
rate volatility. The strategy so far has consisted in a observer), even though trade between South Africa
gradual tightening of the monetary stance: policy and the EU is already governed by the Trade,
interest rates were raised in June 2006 for the first time Development and Cooperation Agreement (TDCA)
in almost four years. Tightening in 2006 reached 200 which came into force in January 2000. Botswana,
basis points overall. This strategy started to bear fruit Lesotho, Namibia and Swaziland (BLNS) make the
in early 2007. Despite the depreciation of the rand case for special treatment of their sensitive products.
and the rise in inflation in 2006, stable nominal wage The European Commission (EC) made it clear however
settlements in the third quarter 2006 and an inverted that South Africa could not benefit from such special
interest rates curve are indications that expectations treatment and would remain subject to the existing
regarding inflation remained stable. Also, as real interest TDCA regime. In turn, South African trade officials
rates rise, domestic demand and credit were expected rule out such a possibility. Also, the aim of the SADC
to slow down in early 2007. Combined with softening EPA group is that in due course all its members (and
international oil prices in early 2007, the latter not only its least developed members – Angola,
developments improved the inflation outlook and led Mozambique and Tanzania) should benefit from an
the SARB’s monetary policy committee not to raise Everything But Arms (EBA) access to the EU market,
interest rates further on 15 February 2007. even though this is unlikely to be endorsed by the EC.
External Position In 2005 and 2006, vibrant domestic demand

combined with the lagged effects of the strong rand to
The trade liberalisation programme pursued by boost imports. At the same time, the value of oil imports 493
South Africa since 1994 has resulted in a more open has been driven up by high prices. Overall, the value
economy: the import penetration ratio was estimated of imports increased by about 17 per cent in 2006.
at an all-time high of 25.1 per cent in 2006 while the Exports, especially in manufacturing, grew less rapidly
exports-to-GDP ratio (including services) increased at 14.8 per cent, hampered as they were by the effects
from 22 per cent in 1994 to an estimated 23.8 per cent of the strong rand, while local producers tended to
in 2006. However, upstream sectors are over-protected. serve the booming domestic market instead of expanding
The tariff structure is also too complex with too many their market shares abroad. As a result, the country’s
tariff bands and spikes. merchandise trade deficit widened from 0.8 per cent
of GDP in 2005 to 1.3 per cent in 2006.
In March 2006, the SADC Economic Partnership
Agreement (EPA) Group proposed that South Africa The widening gap in services also contributed to
became a full participant in the Southern African growth in the current account deficit in 2006 to 4.6 per

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance 1.4 2.1 -0.1 -0.8 -1.3 -1.5 -2.3

Services -0.2 -0.2 -0.6 -0.7 -0.9 -0.9 -0.7
Factor income -2.4 -2.8 -2.0 -2.0 -1.8 -1.7 -1.5
Source: South African Reserve Bank data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/756403288572

South Africa

494 Source: IMF.

http://dx.doi.org/10.1787/272684865441
cent of GDP – its highest level since 1982. Nevertheless, stood at 157 per cent in March 2006, up impressively
the latter was comfortably financed by portfolio capital from 71 per cent in December 2003. Hence, despite
inflows in the first three quarters of 2006, despite a ratio of reserves to imports relatively low by emerging
turbulence in emerging markets, and international markets standards, improving liquidity ratios have
reserves actually increased. But reliance on volatile capital enabled South Africa to easily withstand the turmoil
inflows remains a source of vulnerability and a shift from on emerging markets in 2006 and helped to retain the
portfolio to foreign direct investment (FDI) would be confidence of international investors.
desirable. FDI inflows remain disappointing, however.
South Africa’s foreign debt was just 18.8 per cent
Despite the volatility of the rand and of South of GDP in 2006 compared to 29.4 per cent in 1999
Africa’s vulnerability to capital outflows, the authorities and an ever increasing share of it is rand denominated
remain committed to liberalising capital controls and, (43.8 per cent in the first quarter of 2006 compared
in particular, to gradually lifting remaining ceilings on to 37.5 per cent one year before). Debt service accounted
outflows. Their objective is to replace quantitative for 8.8 per cent of export revenues in 2005.
limits on outward investment with prudential
regulations for institutional investors. This strategy is
made possible by an increasingly comfortable stock of Structural Issues
international reserves, which increased from
$18.7 billion in January 2006 to $21.5 billion in Recent Developments
October. As a result, reserve coverage of imports of
goods and services rose from 7.9 weeks in 2003 to 14 With the macroeconomic situation stabilised and
weeks. Also, the ratio of gross foreign reserves (including creditworthiness restored, the South African authorities
gold) in the economy to gross external short-term debt are now focusing on structural obstacles to growth

South Africa
and on equity. Despite the remarkable transformation government) for construction and upgrading of
undergone by the South African economy, the level stadiums. After investing ZAR 3 billion in infrastructure
of employment creation remains disappointing. With over 1999-2003, Airports Company South Africa
the ASGISA program unveiled by president Mbeki in (ACSA) has allocated a further ZAR 5 billion for the
February 2006, the South African authorities are period up to 2009 for upgrading airport terminals and
pursuing the objective of halving poverty and runways. The O.R. Tambo Airport (Johannesburg
unemployment by 2014. The document identifies six International Airport) is already the busiest airport in
key constraints and related policy measures to address Africa, with 13 million passengers in 2005 and 200 000
them: a) the cost, efficiency and capacity of flight arrivals and departures. In 2006, six new airlines
infrastructures, b) the shortage of suitably skilled joined the 100 or so already present at JIA. JIA is also
labour, c) barriers to market entry and competition, a major freight hub with more than 320 000 tons of
d) the regulatory environment and the burden on cargo moved in 2005 – 7 per cent more than in 2004.
small and medium-sized businesses, e) deficiencies in
government organisation, capacity and leadership, and The much-delayed construction of the Gautrain
f ) the level and volatility of the exchange rate. ASGISA fast rail link finally started in mid-2006. The first
has been criticised as unfocused by some analysts. The segment, linking the airport to Johannesburg, is to be
authorities submitted their programme for review by completed by June 2010 for the World Cup and the
experts from the Harvard Center for International remaining link between Johannesburg and Pretoria
Development3. Although generally supporting its by 2011. To date, it represents the largest public-
approach, these experts lamented its excessive reliance private partnership (PPP) signed on the African
on capital accumulation and its neglect of labour- continent. The ZAR 21 billion contract for a 15-year
market issues. concession was under negotiation for 15 months before 495
it was finally signed in September 2006 by Gauteng
Reflecting government policies, transport province and the Bombela consortium led by Bouygues
infrastructure is improving. In line with the export- Construction and RATP International. The project is
oriented strategy of the country, port development has expected to provide transport for 60 000 to 70 000
become a priority. This is consistent with the importance passengers daily. In response to criticisms, the project
of maritime transport for South Africa, which handled has been further integrated in the existing transport
96 per cent of imports and exports in 2005. The state- system (with commuter trains, buses and with large
owned monopoly Transnet is allocating half of its ZAR car parking areas) and safety measures have been
32 billion investment budget to restructuring and upgraded. However, the Gautrain project remains only
expanding port facilities in the coming five years. a partial answer to the huge Johannesburg-Pretoria
Although delayed, the deep water port in Coega is commuting problem, which concerns over 6 million
expected to start operating in early 2008. By end-2006, commuters a day.
the Coega industrial development zone had attracted
some 10 investors, including aluminium company The upgrading of infrastructures and public services
Alcan which is investing some ZAR 16 billion in an is limited by the limited capacities of local governments
aluminium smelter. and skill shortages. This is a real challenge for the
central authorities, given their commitment to increase
The 2010 World Cup is also generating investment provincial and local budgets by 58 per cent over the
in infrastructure. Some ZAR 15 billion have been next three fiscal years. Several mechanisms have been
earmarked by central government (and similar developed to promote training and capacity building
contributions are expected from other spheres of in local government. Technical assistance is provided
3. http://www.cid.harvard.edu/southafrica/index.html

South Africa
by the Treasury in the fields of planning, budgeting and is weak among emerging countries and even
financial management. Also, the Development Bank deteriorating. It is partly compensated by a high mobile
of Southern Africa (DBSA) has started providing aid phone penetration, with 31 million registered users
in basic service delivery through the deployment of and 65 mobiles per 100 inhabitants. The country has
experts in municipalities with the greatest needs (Siyenza been trying to open the fixed line sector to competition
Manje initiative). In March 2006, in order to tackle the since 2000 with the establishment of the Independent
mismatch of skills, the Deputy President launched the Communications Authority of South Africa. However,
Joint Initiative for Priority Skills Acquisition (JIPSA). competition is only just developing with the entry in
It focuses on skill development through improved August 2006 of a second fixed-line operator, Neotel,
alignment between higher education programmes and led by the Indian group Tata. The new company has
the needs of the public and private sectors, incentives announced a ZAR 1 billion investment plan over the
for the repatriation of skilled South African expatriates next 10 years to develop the network. A new Electronic
and recruitment of retired experts. Communications Act was also adopted in parliament
in April 2006 to allow attribution of licences for both
Faced with very weak export performance since mobile and fixed systems. Besides the three existing
1960 by international standards and a low level of mobile operators, three additional telecom groups are
export sophistication compared to its GDP level, the expected to benefit from the new act to offer some
South African authorities are seeking to strengthen mobile phone services, which should help put further
trade and industrial policy. The new national industrial pressure on prices. Some uncertainties remain, however,
policy framework attempts to better coordinate, focus, notably regarding use of the West Africa / South Africa /
monitor and evaluate industrial policies so as to increase Far East underwater high speed cable for which Telkom
496 their impact. Fourteen priority sectors have been has a monopoly.
identified, with particular emphasis initially on business
services and tourism. The authorities are aiming to The market opportunities created by the emergence
diversify away from minerals and mineral-processing, of the black middle class and large infrastructure projects
while intensifying industrialisation and higher value are stimulating FDI. FDI is also facilitated by a sound
activities in new areas of global growth. To that end, governance and legal system. Some six major new
they are deploying a mix of incentives (including fiscal), investments worth a total ZAR 45 billion, notably in
large infrastructure investment and financing of priority the retail, financial services and transportation sectors,
sectors. They are also encouraging industrial are in the pipeline. Despite progress in diversification,
development zones (ex. Coega). So far, however, there FDI in South Africa is likely to remain concentrated
is a lack of co-ordination among the proliferation of on primary products and natural resource-intensive
initiatives. The approach of targeting certain sectors, industries for some time. Domestic private investment
while large unresolved economy-wide structural is also picking up with new developments, notably
bottlenecks remain, is questionable. In that respect, shopping malls, in townships. Obstacles to higher
the authorities are seeking to enhance competition foreign and domestic investment include the relatively
through trade liberalisation and import tariffs on steel small national and regional markets, factor costs (with
have been removed recently. A new competition law the notable exception of electricity) and lack of skills.
is under review by the Department of Trade and
Industry. The overall business environment is characterised by
a continuous improvement in investor and consumer
Strengthening competition is especially needed in confidence, fuelled by rising growth. However, the
telecommunications, the cost of which remains a major selection of the new ANC president in 2007 is putting
concern for investors in South Africa. Even though some pressure on the investment climate. Jacob Zuma,
South Africa ranks first in sub-Saharan Africa in terms a possible successor to President Thabo Mbeki, has been
of fixed line coverage (10 per 100 inhabitants), this ratio critical of the government’s liberal economic policies. His

South Africa
accession to power might slow the pace of reforms, by 7 to 10 per cent per year and are consequently
notably in the labour market, but would probably not strengthening the police.
dramatically reverse the government’s policies.
South Africa’s Black Economic Empowerment
High crime rates also remain a detriment to the (BEE) programme continues to be an issue for debate
attractiveness of the country, even though improvements in the country; although it is official government policy.
are appearing. The Police Service’s crime statistics There are encouraging signs that the black middle class
released in September 2006 show a drop in the overall is expanding thanks to affirmative action, particularly
crime rate by 11.3 per cent between April 1994 and in the public sector. The government’s official Codes
March 2006. Serious crimes also appear to have peaked. of Good Practice on BEE, which will shape the racial
Nevertheless the number of serious crimes remained transformation of South Africa in the coming decade,
high at some 2.17 million in 2005/06, and some of were gazetted early February 2007. The codes are the
them, including homicides, residential robberies and blueprint for implementation of government’s “Balanced
most of all drug-related crimes are still on the rise. The Scorecard” (the range of measures businesses must
authorities have set a target of reducing “contact crimes” undertake).
Table 4 - The Balanced Scorecard

Elements Definition Weighting Compliance Targets
Ownership Voting rights 20 points 25% +1 vote

Management control Representation in management 10 points 40% to 50%
Employment Equity Weighted employment equity 15 points 43% to 80% 497
Skills Development Skill development expenditure 15 points 3% of payroll
Preferential Procurement Procurement from black-owned 20 points 70%
and empowered enterprises
Enterprise Development Investment in black-owned 15 points 3% (Net Profit After Tax)
and empowered enterprises
Socio-Economic Development Industry specific initiatives 5 points 1% (Net Profit After Tax)
Source: Authors based on DTI.

http://dx.doi.org/10.1787/373031608003
Companies must score in each of the seven questions remain about the extra regulatory burden of
categories, including equity transfer or ownership. The complying with a fairly complex set of rules.
exceptions are: multinationals which can prove that it
is their standard practice not to have outside shareholders The financial system remains sound and regulation
in subsidiaries; businesses with a turnover of less than is improving. At the end of June 2006, the capital
ZAR 5 million which are excluded completely; adequacy ratio of the banks (regulatory capital over
businesses with a turnover of between ZAR 5 million risk-weighted assets) stood at 12.4 per cent, well above
and ZAR 35 million which can chose five elements of the required 10 per cent. Asset quality also improved
the scorecard to comply with. However, any company with non performing loans at 1.2 per cent of total
wishing to do business with government will have to loans compared to 1.5 per cent end of 2005. The most
comply with the broad-based BEE scorecard. Part of significant risk to the banking sector today lies in
any such companies’ “preferential procurement” increasing household mortgage debt in a context of
compliance is to buy goods and services from other rising interest rates. Bank credit to households increased
companies which comply with the codes, creating a from 33 per cent of total credit in June 2005 to 43 per
cascade effect which will affect all but the smallest cent in June 2006. However, the number of insolvencies
firms. Apart from its impact on small businesses, has steadily declined since 2003 and household debt

South Africa
service remains low, making it unlikely that loan defaults Despite the official adoption of a decentralised
would be widespread enough to cause systemic approach to managing water and sanitation issues, the
problems. Strengthened bank supervision, and enhanced sector remains highly centralised with the DWAF
bank risk management systems, notably to comply overseeing both service provision and the institutional
with the Basel II agreement, have also reduced the risk and policy framework. This reflects capacity constraints
of a banking crisis. at the municipal level but also some reluctance on the
part of the DWAF to relinquish its control. There is
Access to Drinking Water and Sanitation also very little co-operation with the private sector.
The number of public-private partnerships fell to only
South Africa is a semi-arid country, with rainfall well three after the termination of the management contract
below the world average and unevenly distributed; available between the municipality of Johannesburg and Suez
water resources are used very intensively. No fewer than affiliated JOWAM in March 2006. The government
458 dams were commissioned between 1950 and 2000, has shown a clear reluctance to transfer substantial
initially for irrigation purposes but subsequently also for responsibilities to private operators.
the provision of drinking water. These facilities were not
initially located near population centres and therefore Overall, the country has made considerable progress
required heavy investment in piping. Water is also very in improving access to safe water and sanitation,
inefficiently used with 60 per cent of available supply especially considering the rising population: a total of
consumed by agriculture, which only accounts for 4 per 21.4 million people have been given access to improved
cent of GDP. Water pollution remains an issue in a water supplies since 1994, bringing the percentage of
country in which agriculture, mining and energy are people without access from 39.9 per cent to 7 per cent.
498 major sectors. With demand growing, South Africa faces Meanwhile, 9 million people have been provided with
a serious risk of shortages by 2020. To meet the challenge, improved sanitation, raising the percentage of people
the country is investing primarily in water use efficiency with access from 49 per cent to 69 per cent. In 2003,
programmes (especially in the domestic and agricultural the DWAF established the Strategic Framework for
sectors) and secondarily in additional supply via recycling, Water Services, which set targets of universal access to
desalination and new infrastructures. water by 2008 and to sanitation by 2010, well ahead
of the MDG targets of 80 per cent with access to water
At the end of the apartheid regime in 1994, South and sanitation by 2015. In practice, however, while
Africa inherited a backlog of some 15 million people South Africa will easily reach the MDG water supply
with no access to safe water supply and more than target by 2015, it will find it difficult to meet the
20 million with no access to sanitation services, most sanitation target and provision of a universal service is
of them in the former homelands. The newly elected likely to take even longer.
government instituted an overhaul, with the
Department of Water Affairs and Forestry (DWAF) at After the remarkable progress of the last decade,
the centre of the new system. The 1994 White Paper tackling the remaining backlog of 5 million people
on Community Water Supply and Sanitation, the 1997 without services represents a much more difficult
Water Services Act and the National Water Act of 1998 challenge as this population is mostly rural and dispersed.
established the objective of access to basic water and Better rural access to water services will require
sanitation services for all while ensuring environmental substantial improvement in municipalities’ managerial
sustainability as well as economic efficiency. A 2001 and engineering capacities. At the same time, urban
White Paper introduced a free basic water allotment water and sanitation systems are in urgent need of
of 25 litres per day per person. The constitution vests better maintenance. While government focuses mostly
the responsibility for water and sanitation services in on the development of new infrastructure, maintenance
local government. National government, however, is of older networks, which today are between 50 and 100
provided with the regulatory function. years old, is neglected. All these problems mean that

South Africa
it will be difficult to raise access levels much in the corruption and further indicted with rape charges, his
coming years. political prospects as future ANC president seemed
very slim. However, his case changed dramatically in
Even though it remains largely state-owned, the September 2006 when the corruption charges against
sector is seeking financial sustainability but faces low him were dismissed for lack of proof and he was
willingness to pay on the part of population, partly as acquitted of rape. Zuma is back in contention for the
a result of historical resistance in the townships to the ANC presidency, a post which is virtually certain to lead
apartheid regime, and, in the case of smaller to the presidency in 2009. Despite the trials, support
municipalities, limited collection capacity. Smaller for him has grown, especially among the unions and
municipalities face huge challenges in terms of covering the communists which see in him the most credible
operational and maintenance costs in a context of high alternative to the current business-oriented government.
poverty levels, existing free access to basic water services
and plans on the government’s part to phase out Between 1995 and 2005, South Africa’s population
subsidies after five years. On the other hand, some of increased from 41.5 million to 46.9 million while
the bigger municipalities such as Johannesburg are average household size fell from 4.7 to 3.7 people.
seeking innovative financing schemes. Demographic pressure, combined with a rise in the
number of households and migration to urban areas,
has partly offset the government’s efforts to improve
Political Context and Human delivery of public services. For example, even though
Resources Development 2.5 million new formal housing units were built between
1995 and 2005, the proportion of households living
South Africa’s standing continues to rise on the in formal housing decreased from 72.9 per cent to 499
African continent as well as in the international arena. 69.8 per cent and informal settlements mushroomed.
In 2007, the country starts a two-year term on the This trend is making it increasingly difficult to meet
United Nations Security Council. It has also become demand for electricity and water services.
chair of the G20 forum of industrialised and developing
economies. However, with the election of the next Despite the creation of 1.2 million jobs in the
ANC president approaching, internal politics is moving formal sector (excluding agriculture) between March
under the spotlight. 2001 and March 2006, the growth of the labour force
has prevented unemployment from being significantly
The March 1 2006 municipal elections gave reduced and real wages from being increased. From
expression to a rise in popular discontent fuelled by a 1995 to 2005, the active population rose by 65 per cent
perception of limited progress in the provision of public and the number of unemployed people increased by
services at local level, the slow pace of improvement in 168 per cent, from 1.6 million to 4.4 million. The
the majority of the black population‘s living conditions stubbornly high unemployment rate also stems from
and pervasive unemployment. Rising dissatisfaction is the apartheid legacy of skill mismatch and inequalities.
putting pressure on the ANC coalition, deepening the Nevertheless, encouragingly, the unemployment rate
divide between the current leadership and the left wing has started to decline in recent years, from a high of
represented by the Congress of South African Trade 30.2 per cent in 2002 to 25.6 per cent in March 2006.
Unions (COSATU) and the South African Communist
Party (SACP). The coming selection of the ANC Earnings inequality rose sharply during 1995-1999
president in December 2007 prior to presidential and remained high but stable over 2000-04. South
elections in 2009 is exacerbating the tensions which have Africa’s efforts to stimulate export-led growth have
been further fuelled by the twists in the Zuma affair. yielded limited gains in employment and incomes for
After Jacob Zuma, then deputy president, was dismissed unskilled workers due to the capital-intensive nature
by President Mbeki in 2005 on allegations of fraud and of exports. Clearly, skill development remains a key

South Africa
priority and South Africa rightly devotes almost one dead in 2006 alone reached 350 000. Statistics also
fifth of budget spending to education. The government’s suggest that the epidemic is still worsening, even if at
efforts are directed at learners via the extension of free a slower rate. As a result, life expectancy has fallen from
schooling, which is due to be made available to 40 per 57 years in 1995-2000 to under 50 in 2006. To tackle
cent of learners in 2007, and teachers via improved the tremendous challenges raised by the disease, South
qualifications. Africa has put in place a large anti-retroviral treatment
plan, in which some 134 500 people have been enrolled
Rising inequalities co-exist with the emergence of through the public sector and a further 80 000 people
a black middle class. According to Cape Town by the private sector and NGOs. However, enrolment
University’s Black Diamond marketing survey, the remains well short of needs with some 500 000 adults
number of black households earning more than ZAR estimated to be still without access to treatment. More
154 000 a year increased by 368 per cent between importantly, there are signs that the government is
1998 and 2004. From next to nothing in the early reversing its approach to HIV/AIDS. Following the
1990s, the middle class had grown to 10 per cent of uproar created by the South African display of vegetable
the black adult population or 2 million individuals by “treatments” at the Toronto AIDS conference in August
2004 and is currently growing at a rate of 50 per cent 2006 and under the pressure of NGOs (notably
per year. Three quarters of the black middle class still Treatment Action Campaign) and of 81 leading
live in the townships and the remaining quarter scientists who called for the sacking of controversial
commute from the suburbs to the townships where health minister Manto Tshabalala-Msimang, the cabinet
they visit family and friends over week-ends. formed an inter-departmental committee to oversee
the government’s response to the epidemic. Deputy
500 In rural areas, though, little has changed. With President Phumzile Mlambo-Ngcuka, who heads the
only four per cent of land owned by the black population committee, has already made her mark through strong
(compared to a target set in 1994 of reaching 30 per statements and symbolic gestures such as meeting AIDS
cent by 2015), land reform has made slow progress. The specialists and walking arm in arm with TAC activists.
authorities are adopting a more pro-active policy, The HIV/AIDS strategic plan for 2007-2011, due in
moving away from the initial approach based on December 2006, was postponed to March 2007 to
voluntary transactions to relying more on expropriations allow for broader participation, notably by civil society.
and compensations. The two key objectives of the plan are a 50 per cent
reduction of the new infection rate by 2011 through
A total of 5.4 million people are HIV-infected in increased prevention and the extension of treatment,
South Africa, including 16.2 per cent of 15-49 year old care and support to 80 per cent of the HIV-positive
adults and one third of young women aged 25 to 29, population. This policy reversal provides for greater
according to the 2005 South African National HIV availability of drugs and will encourage the population
survey commissioned by the Nelson Mandela to make more use of conventional treatment, thus
Foundation. Some 2.2 million people were estimated opening the way to much-needed progress.
to have died of AIDS by July 2006. The number of

Tanzania
Dodoma
key figures
Tanzania
T ANZANIA’S ECONOMIC IMPROVEMENT is in domestic revenue mobilisation as a result of weakness
consolidating and although the recent harsh drought in tax administration.
caused food shortages and impaired electricity
Economic growth is
generation, economic activity has remained resilient. Challenges also remain in tackling
sustained and
Real GDP growth was 5.7 per cent in 2006 and is structural impediments to growth, in
improvements in tax
expected to pick up to 6.8 per cent in 2007 and to 7 per particular the persistent power crisis.
administration will
cent in 2008 as increased investment begins to drive Much remains to be done, too, in
enhance progress
growth. This reflects confidence in the economy and tackling the poor business environment
towards fiscal stability
shows a positive outlook for sustained growth. and enhancing private-sector
Improvement in economic management is delivering participation in the economy. On the political scene,
relatively low inflation despite the adverse impact of the government would do well to tackle the perceived
the drought. The external sector has benefited from high level of corruption to complement the improving
improvements in exports and considerable debt relief economic environment. Furthermore, improving water
under the Multilateral Debt Relief Initiative. However, management and sanitary services is a major challenge.
government finances still suffer from under-performance Although Tanzania is generally well endowed with
503
■ Tanzania - GDP Per Capita (PPP in US $) ■ East Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Tanzania - Real GDP Growth (%)
8 3500
7
3000
6
2500
5
2000
1500
3
1000
2
500
1
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Source: IMF and domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/338683128411

Tanzania
water resources, there is a great variation in water The government was consequently forced to distribute
availability throughout the country. There is the a considerable amount of grain from its strategic grain
possibility of continued water shortages as population reserves, thus reducing the country’s stock of grain
growth reduces water availability. Sanitation services reserves to 16 000 tonnes at the end of June 2006 from
remain inadequate in the country with only a very 113 000 tonnes at the end of June 2005.
small proportion of the population in both the urban
and rural areas enjoying access to proper sanitary The government has put in place measures since
services. The problem of the poor state of sewerage 2006 to avert the unending food crisis and to enhance
services is exacerbated by inadequately developed agricultural productivity. These include streamlining
pollution control and solid waste management. and simplifying the regulatory environment, improving
the functioning of the legal system and addressing
human resource constraints. Other ongoing support
Recent Economic Developments services to the agricultural sector include provision of
subsidies for the transportation of fertiliser to the main
Tanzania’s economy has continued to perform well cereal producing regions, increased funding for
in spite of the prolonged drought that has caused food agricultural research and extension services, and the
shortages and a scarcity of water for electricity generation strengthening and rationalisation of the export credit
over the past three years. In 2006, real GDP growth guarantee scheme.
remained resilient at 5.7 per cent, just below the annual
average of about 6 per cent over the 2000-05 period. Estimates for 2006 suggest that the industrial
Growth is expected to pick up strongly to 6.8 per cent sector continued to achieve rapid growth of 7.4 per
504 in 2007 and further to 7 per cent in 2008, driven cent, albeit below the 10.6 per cent recorded in 2005.
mainly by higher investment from both the private The industrial sector’s share in GDP rose to 16.9 per
and public sectors. cent in 2005. The industrial sector’s rapid growth
was due to strong performances in manufacturing,
Economic activity in 2006 was constrained by the construction, and especially mining and quarrying.
drought, which had a negative impact on agricultural Mining and quarrying output grew in real terms by
production, with agricultural output expanding by an 15.7 per cent in 2006, the fifth consecutive year with
estimated 4.5 per cent compared with 5.2 per cent in increases of more than 14 per cent. Growth in the
2005. The negative effect of the drought was felt construction sector rose to 11.9 per cent after
especially in domestic production of cereal crops, which remaining at around 11 per cent for three years in a
declined by an estimated 4 per cent in 2006, resulting row, while growth in manufacturing output rose to
in a sharp deterioration in the security of food supplies. 9 per cent from 8.6 per cent in 2005. However, the
Public administration and other services
Finance and business services 8.8%

12.1%
Transport and communications 4.4% Agriculture

46.1%
11.6%
1.6%
5.7%
Construction 6.8% 2.8%
Electricity and water Mining and quarrying

Manufacturing
Source: Authors’ estimates based on Ministry of Planning, Economy and Empowerment data.
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Tanzania
drought-induced power crisis in the country continues to finance projects that centre on Tanzania’s history, such
to hamper industrial activity. as the slave trade route.
Tanzania’s services sector continues to achieve The expenditure composition of Tanzania’s GDP
healthy growth rising by an estimated 7 per cent in 2006 (see Table 1) reveals a changed outlook, with
with the tourism and hotel/restaurant sub-sectors investment from both the public and private sectors
leading the growth. These sub-sectors remain healthy beginning to grow significantly – a factor that is
as Tanzania continues to enjoy the status of destination expected to underpin faster growth in 2007 and 2008.
of choice for tourists in East Africa. In 2006 the number The share of gross capital formation in GDP has
of tourists to the country rose by an estimated 7.1 per grown in recent years, mainly because of rising public
cent with tourists’ receipts also increasing by an estimated investment. Both public and private investment are
6.7 per cent. This followed heavy advertising of expected to expand rapidly in the next few years as
Tanzania’s tourist attractions by the Tanzania Tourist government capital expenditure increases and
Board and the country’s embassies. A major attraction anticipated increases in foreign inflows materialise.
of the tourist trade is Antiquities Tourism, which Nonetheless, it is incumbent on the government to
continues to see increases in numbers and has very increase momentum in enhancing the business
good prospects in the years ahead. This follows the environment in order to maintain the confidence of
agreement entered into in 2005 by Sweden and Tanzania private investors in the economy.

1998 2005 2006(e) 2007(p) 2008(p)
505
(current prices)

Public 3.3 9.1 7.0 8.0 15.0
Private 12.9 13.1 10.0 12.0 15.0
Consumption 98.5 85.3 3.9 6.3 5.4

Public 7.8 7.3 3.9 3.9 3.9
Private 90.7 78.0 4.0 6.4 5.5

Exports 13.4 22.9 5.7 3.0 3.0
Imports -28.1 -30.4 4.0 8.9 8.3
Source: Ministry of Planning, Economy and Empowerment data, estimates (e) and (p) projections based on authors’ calculations.
http://dx.doi.org/10.1787/517643747584
Macroeconomic Policies sector and the business environment to promote

investment.
Tanzania has been implementing an IMF Poverty
Reduction and Growth Facility (PRGF-III) that came PSI programmes were designed by the IMF for
to an end in December 2006 after being extended from countries that have been pursuing reforms with the
August 2006. In what is considered a graduation from Fund’s support but which may no longer need its
PRGF programmes, the government intends to adopt financial assistance, given their good record in
a Policy Support Instrument (PSI) programme with the economic reform, yet would still benefit considerably
Fund, under which Tanzania will continue with efforts from its advice. When Tanzania adopts the PSI, it will
to maintain macroeconomic stability and implement be the third country in Africa after Nigeria and Uganda
structural reforms aimed at improving the financial to do so.

Tanzania
Fiscal Policy budgetary resource allocation and the National Strategy

for Growth and Reduction of Poverty (NSGRP)
The key challenge to Tanzania’s fiscal policies has priorities through the rolling out of the Strategic Budget
remained under-performance in domestic resource Allocation System (SBAS) to local government
mobilisation, resulting from weak tax administration, authorities in addition to government ministries,
which leaves many loopholes for tax evasion, as well departments and agencies that were already using the
as the non-integration of the informal sector into the system.
tax base. In addition, domestic revenue mobilisation
suffers from numerous tax exemptions; for example, The 2005/06 budget suffered from unplanned
it is estimated that 20 per cent of potential customs additional costs associated with transfers to the Tanzania
duties are exempted. The government’s medium-term Electric Supply Company (TANESCO) to deal with the
fiscal strategy addresses these problems and is making power crisis, procurement and distribution of food aid,
some progress. In addition to ongoing reforms in tax and higher than anticipated pension outlays, following
and customs administration, the government is the start of payments of pensions to former employees
implementing measures to improve expenditure of the defunct East African Community (EAC).
planning and management capacity. The government’s
goals focus on fiscal prudence, compliance with public The budget deficit in 2005/06 was mitigated by
procurement regulations and intensification of the improved revenue collections resulting from the ongoing
fight against corruption. tax and customs administration reforms being
implemented by the Tanzania Revenue Authority. In
Further improvements in expenditure controls are 2005/06, tax revenue increased to 12.7 per cent of
506 envisioned at the local government level to reduce GDP from 12.4 per cent the year before, in spite of
expenditure arrears and ensure that funds provided to the temporary waivers of import duty on cereals and
Local Government Authorities (LGAs) are used for VAT on petroleum imports to, respectively, avert the
the intended purposes. The government is also working food supply crisis and curb the rapid increases in the
to improve expenditure management, by addressing the domestic price of fuel. Tax reforms are expected to
problem of large idle government balances in yield further improvements in 2006/07.
commercial bank accounts that should be spent, and
to strengthen its expenditure tracking and monitoring. The expenditure performance in 2005/06 reflected
The government has also strengthened the link between substantial restraint in the face of the unexpected events

1997/98 2002/03 2003/04 2004/05 2005/06 2006/07(e) 2007/08(p)
Tax revenue 11.4 11.0 11.7 12.4 12.7 13.0 13.1
Grants 2.3 6.2 6.1 7.6 6.5 7.8 7.8
Interest 4.7 1.0 0.9 1.1 1.4 1.2 0.8
Primary balance 2.6 -0.6 -2.5 -3.5 -4.6 -3.2 -3.4

Overall balance -2.1 -1.6 -3.5 -4.6 -6.0 -4.5 -4.2
Source: Ministry of Planning, Economy and Empowerment data, estimates (e) and (p) projections based on authors calculations.
http://dx.doi.org/10.1787/076138050382

Tanzania
described above. Government expenditure rose to rising only marginally from 15.1 per cent in September
26.5 per cent of GDP but capital expenditure fell, as 2005 to 15.4 per cent in June 2006.
a result in part of delays in disbursements of pledged
foreign assistance to the government. The government Drought-induced food price increases in 2006
plans to reverse the declining development expenditure helped push up the annual average inflation rate to 7 per
with sharp increases in infrastructure spending in 2007 cent from about 4 per cent in 2005. In the expectation
and 2008 in the energy sector, to diversify power of better harvests and continued monetary restraint, the
generation sources, and in the transport and annual rate of inflation is projected to fall to about 6 per
communications and water sectors. However, reliance cent in 2007 and 2008.
on donor funds for these investments continues to
pose the main challenge for their attainment. External Position
The overall fiscal deficit increased to an estimated Following the adoption of East Africa Community
6 per cent in 2005/06, but is projected to decline to (EAC) Customs Union (CU) in January 2005, a
around 4 per cent of GDP in 2006/07 and 2007/08 timetable was approved in April 2006 for launching a
(see Table 2) thanks to expected increases in foreign aid common market by 2010. Tanzania and the other EAC
and relief arising from the Multilateral Debt Relief partner states thus remain committed to liberalisation
Initiative (MDRI). to enhance competitiveness, by, among other things,
strengthening mutual trade integration. Implementation
Monetary Policy of various reforms in the context of EAC-CU regulations
is scheduled for review in 2010. At the moment the
Price stability remains the central objective of the government of Tanzania is working on lowering existing 507
Bank of Tanzania (BoT). This objective was challenged non-tariff barriers within the EAC-CU relating to
in 2006 after a considerable build up of liquidity arising standardisation, quality assurance, and metrology.
mainly from an expansionary fiscal stance related to
election expenditure and from relief initiatives that Exports of goods and services have continued to
were supported by large inflows of official development exhibit robust performance since 2002 as a result mainly
assistance following the protracted drought. In 2006 of the increase in export volumes of coffee, tobacco and
a tighter monetary stance from the BoT, coupled with cotton. Similarly, there has been an increase in the
high demand for credit in the economy, drove up price of almost all traditional exports in the world
interest rates on the government’s treasury bills. The market except for tea and cashew nuts. The share of
rate on the 91-day Treasury bill rose from 12.5 per traditional exports (coffee, cotton, tea, cashew nuts,
cent in September 2005 to 13.4 per cent in June 2006. cloves, sisal, and tobacco) in total merchandise exports
However, commercial bank rates remained reasonably rose to 21.2 per cent in 2006 from 20 per cent in 2005.
stable, with the average commercial bank lending rate In 2006 traditional and non-traditional exports grew

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -9.5 -7.0 -8.9 -10.5 -10.6 -11.3 -12.8

Services -5.4 2.2 1.4 0.5 3.2 2.6 2.2
Factor income -1.3 -1.6 -1.6 -1.6 -1.4 -0.5 -0.3
Source: Domestic authorities data, estimates (e) and (p) projections based on authors calculations.
http://dx.doi.org/10.1787/530410221802

Tanzania
by about 19 per cent and 12 per cent respectively. In In 2006 the exchange rate of the shilling against
respect of non-traditional exports, manufacturing the US dollar depreciated by about 11.3 per cent.
exports showed a significant increase, although gold While the Central Bank continued to allow the
continued to contribute the largest share in total non- exchange rate to be market-determined, it nevertheless
traditional exports. Traditional exports continued to had to intervene to smooth excessive fluctuations in
benefit from an easing of structural constraints, the exchange rate caused by fluctuations of foreign
including improvements in roads, access to inputs and exchange inflows and outflows. Gross international
extension services, as well as favourable commodity reserves fell to the equivalent to 4.4 months of imports
prices. Traditional exports have also gained from both by the end of June 2006 from 7 months in June 2005
price and volume increases, with increase in volumes even though in nominal terms the value of gross
consequent on availability and timely usage of international reserves remained broadly unchanged at
agricultural inputs. about $2 billion.
Imports of goods and services in all categories have As a result of the considerable debt relief extended
also continued to grow. Oil and food imports have to Tanzania during 2005/06, the external debt
risen rapidly since 2005 because of higher world prices sustainability indicators continued to improve. As at
and growing demand for food imports to meet domestic the end of December 2005, Tanzania’s total external
demand. Because imports have grown faster than exports debt amounted to $7.93 billion, which represented a
and current transfers have been lower than projected, decrease of 1.1 per cent over the level at the preceding
the current account balance remains precarious, with year. The decrease was largely the result of debt relief
its pressure contributing to a continued depreciation accrued under the Heavily Indebted Poor Countries
508 of the shilling. (HIPC) arrangement. At the end of 2005, Tanzania had

120
100
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/873733043286

Tanzania
received debt relief amounting to $406.8 million. A large part of activities in the private sector in
Tanzania will continue to benefit from the MDRI Tanzania operates informally. A 2005 diagnostic report
under which it is expected to get debt relief amounting of the Property and Business Formalisation Program
to $4.83 billion, of which $336 million owed to the in Tanzania (PBFT), estimated that as much as 98 per
IMF was cancelled in December 2005. The cent of businesses are still classified as informal
International Development Association (IDA) and the enterprises. Factors that hinder formalisation of
African Development Fund (AFD) have also approved businesses include cumbersome regulatory and
significant MDRI debt relief to Tanzania. The administrative procedures that contribute to the high
Government continues negotiations with remaining cost of doing business. A new forum for policy dialogue
bilateral creditors under the Paris Club, namely Brazil between the private sector and the government has
and Japanese Agencies, as well as Non-Paris Club been established, which is expected to facilitate action
Creditors. by government in addressing impediments to private
sector development.
Structural Issues In 2005 the government established a Regulations

Unit, charged with the responsibility of managing and
Recent Developments supervising implementation of the Business
Environment Strengthening for Tanzania (BEST)
While Tanzania has been able to maintain progress programme. The BEST programme aims to reduce
towards macroeconomic stability, the country is still the cost of doing business in the country. It seeks to:
faced with the daunting challenge of raising the incomes eradicate administrative and procedural barriers; improve
of its people and reducing poverty. Considerable the quality of public services, including resolution of 509
challenges remain in overcoming structural constraints commercial disputes; and enhance the capacity of the
to development, including improvement of private sector in advocating a better business
infrastructure services in the energy, water, transport environment. The programme has facilitated the
and communication sectors as well as in fostering local preparation of the Business Activity Registration Bill
entrepreneurial capacity through improvement of the and land mortgage regulations to facilitate the use of
regulatory environment. Tanzania fares poorly on land as security for accessing finance. In 2005 the
measures of the business climate, such as the World government also completed preparation of the Private
Bank’s Doing Business survey in which it ranks 142nd Sector Competitiveness Project, the objective of which
out of 175 countries. is to enhance the capacity of the private sector to
respond to viable opportunities in local and foreign
The government has signalled its determination to markets, improve access to finance, and strengthen the
tackle some of these structural constraints. In 2006, the business environment.
government focused its efforts mainly on the energy
crisis caused by the drought-induced decline in power Privatisation of public enterprises continues, with
generation capacity. The major undertaking in this completion scheduled for December 2007. The Public
regard involves the Power Sector Reform Strategy with Sector Reform Commission (PSRC), which is
its financial recovery programme for the national energy responsible for managing the privatisation exercise, is
utility company TANESCO. In the transport sector, to complete the privatisation of the remaining 36 public
the government finalised in December 2006 the enterprises over the next year. Some of the major public
Medium-Term Transportation Infrastructure Investment enterprises still to be privatised include the National
Plan. The government is also implementing various Insurance Corporation, the Tanzania Zambia Railways
support initiatives for economic empowerment of local Authority (TAZARA), commercial units of Tanzania
entrepreneurs and for improving the business Ports Authority (excluding the container terminal that
environment for private-sector activity. has already been leased), and the power utility

Tanzania
TANESCO. In 2006, 11 more enterprises were Further, Tanzania experiences a long dry season normally
privatised and 126 non-core assets sold, for a total of extending from June to October, which tends to affect
322 enterprises and 647 non-core assets divested as at river flows and since 2001 its severity has led to a drop
end December 2006. The government is using the in levels in water reserves. Environmental degradation
privatisation programme to facilitate development of and pollution of water in catchments areas and limited
local capital markets by selling to the public, through investment in the collection and distribution of water
the stock exchange, government shares in previously to areas far from water sources also explain the variability
divested enterprises. in coverage of supply of water. Current estimates show
that the amount of water resources available for human
Although Tanzania’s financial sector is healthy, it use in the country is 89 cubic kilometres equivalent to
remains small in relation to the requirements of the 2 700 m3 a head per year, well above the 1 700 m3
growing economy. The financial sector is dominated requirement per person deemed to be adequate.
by the banking sector with most branches concentrated
in the capital city, Dar es Salaam. Consequently the Nonetheless, there is the possibility of future water
authorities are implementing a second generation shortages in Tanzania. The population is projected to
Financial Sector Reform Programme (FSRP) to reach 59.8 million by 2025, which implies that the
strengthen the contribution of the financial sector to amount of water available per person will decline by
investment and economic growth. In 2006, the Bank about 45 per cent to 1 500 m3 a head, below the
of Tanzania Act and the Banking and Financial 1 700 m3 threshold. Climate change has meant that
Institutions Act (BFIA) were passed. These acts reinforce Tanzania has been receiving inadequate rainfall since
central bank autonomy and accountability and 2001, which in turn has led to reductions of water
510 strengthen the legal framework of the financial sector. levels in various catchments. Inadequacy of rainfall
also meant that not enough water could be harnessed
Access to Drinking Water and Sanitation in the major water reservoirs for electricity generation
thus creating the twin problems of water and energy
Tanzania is endowed with adequate water resources shortages in the country.
for industrial and domestic use, including power
generation. It is estimated that about 5.5 million of the About 43 per cent of water resources in Tanzania
country’s 94 million hectares are covered with fresh are shared with other countries. In the case of the Great
water resources, including three Great Lakes that border Lakes, Lake Victoria is shared with Kenya and Uganda;
the country and inland lakes. The three lakes that border Lake Tanganyika is shared with Burundi, Zambia and
the country and whose waters are shared with the Democratic Republic of Congo; and Lake Nyasa
neighbouring countries are Lake Victoria (the second is shared with Malawi and Mozambique. Water uses
largest freshwater lake in the world), Lake Tanganyika are diverse, including domestic, industry, agriculture
(the second deepest lake in the world), and Lake Nyasa. and livestock, wildlife and hydropower supply. In
Inland lakes include Rukwa, Eyasi and Manyara. There Tanzania it is estimated that 80 per cent of installed
are also major rivers flowing into the lakes and the Indian electricity generation capacity relies on hydropower,
Ocean and underground water is another important something that tends to fuel competition and conflicts
source of water in both rural and urban settlements. of interests among water users. A strong mechanism
for water resources management is thus indispensable
While water resources are deemed abundant, there if conflicts among users within and between countries
is a great variation in water availability throughout the sharing the waters are to be avoided and it is to be
country, which can be explained by differences in ensured that the resources are used sustainably for
topography, rainfall pattern and climate. About one third human development. Conflicts are also likely where
of Tanzania receives less than 800 millimetres of rainfall individual countries’ water use plans are not co-ordinated
per annum and is considered to be arid or semi-arid. for trans-boundary waters.

Tanzania
In August 2003 the Tanzania parliament ratified a public health, well-being and the environment. As a
protocol providing guidelines for the establishment of result, Tanzanians suffer from water-borne diseases
institutions to manage common water resources in such as cholera and from other diseases such as bilharzia,
South African Development Community countries. malaria, scabies and trachoma, which are prevalent in
Tanzania’s water ministry is collaborating with countries areas with poor sanitation facilities.
sharing river Zambezi waters in establishing a River
Zambezi Commission that will manage sustainable The government’s objectives under the NSGRP
use of the basin’s waters. Tanzania is also establishing for water are to raise the level of provision to 80 per
a commission in collaboration with Mozambique’s cent of the population in rural areas and to 90 per cent
water ministry for overseeing sustainable use of the in urban areas by 2010. In respect of the provision of
Ruvuma Basin waters. During 2005/06 Tanzania and sanitation services, the objective is to increase the
other countries sharing water from the Nile continued proportion of the urban population with improved
to manage use of water through the Nile Basin Initiative sewerage services to 30 per cent from the current 17 per
(NBI) which is an interim institution established for cent and to increase coverage of people with access to
this purpose. The process of establishing the permanent basic sanitation countrywide to 95 per cent by 2010.
Nile Basin Commission is in its final stages, including The growth rate of provision of water and sewerage
the required assessment of water use needs in the services is, however, still very low at about 1 per cent
country. In collaboration with Kenya and Uganda, in urban areas and 0.2 per cent in rural areas during
Tanzania continued implementation of the first phase 2005/06. Considerable challenges therefore remain for
of the Lake Victoria Environmental Conservation the government in expanding water and sanitation
Project. The project is one of the collaborative initiatives services in rural and urban areas.
of the East African Community intended to assess the 511
extent of pollution in lake waters and their sources so To address the challenges involved in increasing
that collective measures can be implemented to address access to water and sanitation services, the government
the problem. has been implementing a number of initiatives. The
major focus of these has been to increase access to clean
Development of the water sector is governed by the and safe domestic water, especially for the rural
Water Sector Policy (WSP), the most recent of which population, and to protect water catchment areas from
was issued in 2002. Although the sector is liberalised, pollution and degradation. The initiatives include
the Ministry of Water retains responsibility for capacity building to manage use of water in the water
development, review and further improvement of water basins; involving communities in managing and
and sanitation policy; and for facilitating, co-ordinating developing water sources; collaboration with local
and monitoring development of water and sanitation government authorities in managing water use and
services to the public. development through formulation and enforcement
of by-laws; establishment of water projects and
It is estimated that access to water in rural areas in undertaking assessment of existing water sources to
2005/06 improved to 53.7 per cent, up from 49 per establish the extent of pollution and/or degradation
cent in 2000 and 53.5 per cent in 2004, while urban taking place in water catchment areas.
water supply coverage is estimated to have gone up to
74 per cent in 2005/06 from 68 per cent in December
2000 and 73 per cent in June 2004. In respect of the Political Context and Human
coverage of sewerage services, the current estimated Resources Development
rate is 17 per cent in urban areas, unchanged since
2003, after rising from 10 per cent in 2000. At the same With three peaceful multiparty elections since
time, pollution control and solid waste management 1995, Tanzania remains a good example of a deepening
systems are not yet adequately developed to protect democratic political entity providing peace and political

Tanzania
stability. To ensure that this peace and tranquillity is the number of women in Parliament increased further
preserved, the government undertook additional to 29.5 per cent in 2006, up from 21.7 per cent in 2005.
measures to strengthen public security and safety Amended electoral law requires a 30 per cent
during 2006 through the establishment of a new representation of women in parliament. Currently, 97
Ministry for Public Security. Furthermore, measures of the 319 parliamentarians are women, 22.7 per cent
to enhance accountability and fight corruption in the (22 parliamentarians) of whom were elected and the
public sector continued to be implemented by the other 78 per cent (75 parliamentarians) were appointed
Prevention of Corruption Bureau (PCB) and other for special seats. The number of women ministers and
government institutions. deputy ministers has also increased by 8.6 per cent
compared with the previous cabinet. Currently, 15 of
In 2006 the government launched the second the 59 cabinet members are women.
National Anti-Corruption Strategy Action Plan
(NACSAP II) that incorporates interventions at both The female adult literacy rate as a percentage of the
the central and local government levels. A new anti- male rate continued to improve, rising to 80.2 per cent
corruption bill that integrates all anti-corruption in 2006, up from 80 per cent since 2003. With further
international agreements ratified by Tanzania was improvement in women’s participation in economic
expected to be submitted to the parliament in February and political activities, the 2006 United Nations
2007; this bill also strengthens the capacity and Development Programme (UNDP) Gender
effectiveness of government in this area, particularly with Empowerment Index (GEM) for Tanzania in the Human
respect to the prosecution powers of the PCB. With Development Report (HDR) is estimated at 0.597,
the support of the World Bank and other donors, the which puts Tanzania at 36th out of 75 countries,
512 government is also intensifying its efforts to implement compared to its 42nd position out of 80 countries in
its comprehensive Legal Sector Reform Programme. In HDR 2005. Further improvement in mainstreaming
addition the government plans to build the capacity gender into development is also visible through the
of oversight institutions as well as of the media and civil Gender Development Index (GDI) ranking where
society as part of its efforts to increase their effectiveness Tanzania occupies the 80th position in 2006 compared
in ensuring accountability and thereby discouraging to its 127th position out of 177 countries in HDR 2005.
corruption. This initiative will be implemented through
a programme supported by the Millennium Challenge Despite these gains, Tanzania remains one of the
Corporation of the US Government. In July 2006, an poorest countries in sub-Saharan Africa. The
anti-money laundering bill was submitted to Parliament government’s first review of poverty in 2006 notes
for a first reading. Among the key issues in this Bill is that progress in reducing income and non-income
a proposal for the establishment of a Financial poverty is very slow, especially in areas outside Dar es
Intelligence Unit (FIU) to monitor and report Salaam. This is explained in part by the slow recovery
questionable financial transactions to the relevant from the adverse effects of weather shocks. Tanzania
authorities. Other actions against corruption pursued ranked 64th in the UNDP’s Human Poverty Index
by the government include strengthening the (HPI-1) of 102 developing countries in 2004. The
procurement function in public institutions. HPI-1 focuses on the proportion of people below a
threshold level of human development—life
As part of its initiative to improve the quality of life expectancy, education, and income.
and well-being through empowerment, the government
continued to implement policies and programmes for With respect to health indicators, the most recent
the enhancement of women’s participation in economic Demographic and Health Survey (DHS, 2004), shows
and political life during 2006. Following amendment that Tanzania achieved a decline in mortality rates for
of the National Constitution and electoral laws to both infants and children under five since the last
increase women’s representation in leadership positions, survey in 1999, in comparison to the stagnation in the

Tanzania
same indicators experienced during the 1990s. The HIV/AIDS. Plans are underway to increase the number
DHS (2004) estimates that average infant mortality rate of centres providing anti-retroviral drugs to HIV/AIDS
over 2000-04 was about 68 per 1000 live births, a patients from the existing 96 centres as of December
considerable improvement from the rate of 99 deaths 2005, as well as to increase the registration of people
per 1000 live births between 1994 and 1999. The with HIV/AIDS into the National Care and Treatment
DHS also reveals a considerable decline in the under Plan to increase their access to free drugs.
five mortality from 156 per 1000 live births in the
period 1995-99 to 112 per 1000 live births in the In the education sector, the government has
period 2000-04. continued with implementation of various programmes
to boost education at all levels. Based on the Ministry
During 2006 the government continued to of Education and Culture’s (MoEC’s) Basic Education
strengthen programmes to control and prevent malaria, Statistics, the gross enrolment ratio (GER) for primary
tuberculosis and leprosy, HIV and AIDS, and to education increased further to 109.9 per cent in 2005
improve reproductive and child health services. from 106.3 per cent in 2004 and 105.3 per cent during
Nonetheless, a significant proportion of child deaths 2003. Similarly, the net enrolment ratio (NER) in
in the country continued to be the consequence of primary schools increased to 94.8 per cent in 2005
preventable diseases, including malaria, pneumonia, from to 90.5 per cent in 2004 and 89 per cent in 2003.
diarrhoea, malnutrition, complications arising from In 2006 GER and NER rose again, to 112.7 per cent
low birth weight and HIV/AIDS. Furthermore, and 96.1 per cent respectively. The gap in primary
improvement in health outcomes continued to be school enrolment between boys and girls, however,
limited by inadequate financing, infrastructure and increased slightly during 2005, with girls accounting
accessibility of health facilities, and by human capacity for a 48.9 per cent share of total enrolment during the 513
and logistical weaknesses. HIV/AIDS continues to year, down from 49.9 per cent in 2004. It is expected
pose a grave threat to public health. Available that the gender enrolment gap will be reduced and
epidemiological surveillance data suggest that there eventually disappear with the implementation of
were 188 400 new cases of HIV infection in 2005 initiatives to increase female access to education. Efforts
amongst which 97 000 were women and 91 000 were to recruit and train more teachers made possible an
men, up from 188 100 new cases in 2004. HIV improvement in the teacher pupil ratio to 1:56 in 2005
infection rates are estimated at 12 per cent in urban from 1:58 in 2004. Following the start of the Secondary
areas and 5.8 per cent in rural areas in 2005, but with Education Development Programme (SEDP), the
considerable variations among individual regions. number of government secondary schools in the country
Infection rates among men and women are estimated increased by about 45 per cent in 2005 to 1 202
to have remained more or less unchanged at around secondary schools. The number of private secondary
7.7 per cent and 6.3 per cent respectively, with an schools also went up by 18.6 per cent to 543. In effect
overall average of 7 per cent for the country. Partly as these initiatives facilitated an improvement in the
a result, life expectancy at birth is only 47 years. transition rate from primary to secondary schools to
around 49 per cent, up from an average of about one
The Tanzanian government continues with third in 2003 and 2004.
implementation of the National Multi-Sectoral Strategic
Framework (NMSF), which plans to address HIV/AIDS
in a comprehensive manner so as to reduce the
prevalence rate and increase in new infections. In 2005
the government prepared guidelines on HIV/AIDS
control in the public sector, providing clear guidelines
on procedures for care and support to people living with
HIV/AIDS and also improving on education on

.
Tunisia
Tunis
key figures
Tunisia
I N JANUARY 2008, TUNISIA WILL EXPERIENCE a major investment climate, and economic and political
event in the form of the free entry of European industrial governance and ensure the solidity of its banking and
goods on to its home market. Since the signature of its financial system. Structural reform and economic and
association agreement with the European Union (EU) political liberalisation are
Growth prospects are good
in 1995, Tunisia has been preparing itself to meet advancing only slowly. The
but massive skilled-youth
international competition and has been trying to country has fallen three
unemployment – a mismatch
preserve its competitiveness through performance places in the World Bank’s
between education
upgrade programmes and structural reforms. The stakes Doing Business Index,
and the needs of the labour
are high. For Tunisia, it is a question of integrating itself from 77th position in 2005
market – is a worry.
into the global economy and attracting more foreign to 80th in 2006.
capital so as to maintain market shares and preserve jobs.
In 2005, unemployment affected 14 per cent of the From an economic development point of view,
active population. The challenges the country will have growth prospects remain favourable. The growth rate
to meet are substantial. Although the principal macro- of real gross domestic product (GDP) was 4.2 per cent
economic indicators indicate good performances, in 2005 and should rise to 5.8 per cent in 2006 and
Tunisia must significantly improve its business and 2007. Expansion is due essentially to increased
517

■ Tunisia - GDP Per Capita (PPP in US $) ■ North Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Tunisia - Real GDP Growth (%)
7 12000
6
10000
5
8000
6000
4000
2
2000
1
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/644730458417

Tunisia
agricultural production, the recovery of non-textile confirmation of the solid performance of services and
manufacturing industry and, above all, to the new industrial production. In the XIth plan, covering the
dynamism of the commercial services sector and 2007-11 period, priority has been given to increasing
telecommunications in particular. The expectation of economic growth to 6.5 per cent per year and creating
good performances to come arises from higher domestic jobs. The strategic sectors are new information and
demand resulting from sustained private consumption communication technologies, the engineering and
and a recovery in investment in production. Despite electrical industries and high added value industries such
this strong performance, inflation increased in 2006. as chemicals, bio-chemicals and agro-industry. The
The consumer price index rose by 2 per cent in 2005 government also intends to support conversion in the
but 4.5 per cent in 2006. This rise was essentially due textile sector from sub-contracting to joint-contracting
to the increase in oil prices but also to the pressure of and to increase agricultural production in such areas
domestic demand and the gradual depreciation of the as olive oil and bioculture which have not yet reached
exchange rate, which resulted in inflation being their EU quota levels.
imported. Tunisia must also cope with major public
finance constraints, since two thirds of its budget is The poorer performance of the economy in 2005
devoted to paying salaries and reimbursing the public was due to negative growth in two sectors making
debt. intensive use of non-qualified labour – agriculture and
textiles, clothing and leather.
Tunisia also began some years ago a programme of
gradual liberalisation of its capital account and is moving In 2005, agricultural activity was hit by inadequate
towards a regime of total convertibility of the national rainfall and experienced negative growth of 5.4 per
518 currency. These reforms are hardly making any progress, cent. The fall in agricultural production was particularly
however, and they have little chance of being realised apparent in cereals, production, down by 10.6 per
if they are not accompanied by modernisation and cent, and olive oil, production of which fell 53.6 per
development of the monetary and exchange markets cent - from 280 000 tonnes in 2004 to 130 000 tonnes
and establishment of new inflation targets. in 2005. Even so, excluding agriculture and fishing,
economic growth remained virtually stable in 2005 at
5.6 per cent, compared with 5.5 per cent in the
Recent Economic Developments preceding year. In 2006, moreover, growth in
agricultural production returned to a more usual level
Real GDP growth was 4.2 per cent in 2005 and of 6.6 per cent, thanks to better climatic conditions and
rose to 5.8 per cent in 2006 thanks to the return to higher EU quotas for olive oil, potatoes, tomatoes and
normal levels of agricultural production and figs. Generally, however, Tunisia does not attain its
Other services Agriculture, forestry and fisheries
11.4% 13.1% Mining

5.1%
Government services 14.9% Energy
1.5%
19.7% Manufacturing
11.2%
Transport and communications
17.3% 5.9%
Construction
Source: Authors’ estimates based on Institut National des Statistiques data.

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Tunisia
quotas for agricultural products. The first reason for abroad. In June 2005, a new field with an output of
this is that there is no real agricultural policy and that close to 19 500 barrels per day or 8 per cent of total
the bulk of production is consumed domestically. The national production was brought on stream. Although
second reason is the low level of production, agricultural definitive figures have not been released, Tunisia should
yields and quality, particularly quality control. Tunisia have seen significant increase in its oil production in
is also a major importer of cereals, particularly durum 2006. In March 2006, moreover, tenders were invited
wheat for making bread and couscous which is supplied for the construction and operation of a second crude
by the United States, Canada and the EU. oil refinery. This refinery, which will have a capacity
of at least 120 000 barrels daily, is to be managed under
The fishing sector is concentrated in the Sfax area a 30-year concession. In the natural gas field, production
around the Gulf of Gabès. It employs 25 000 people. has also increased significantly following the investment
In 2005, 108 000 tonnes of fish were caught, compared by BG in 1996 of $600 million in production around
with 109 800 tonnes in 2004. Coastal fishing catches the Gulf of Gabès. Proven natural gas reserves were
were stable at about 27 000 tonnes. Tunisia is trying estimated at 60 million tonnes of oil equivalent in
to restrict excessive coastal fishing through a system of 2002 but exploration is continuing. In 2005, production
satellite surveillance. It also wants to develop activity covered 64 per cent of domestic consumption. Imports
further towards the northern part of the country and matched exports at around 566 million cubic metres.
on the high seas and is in the process of modernising The trans-Mediterranean pipeline, which transports
its refrigeration capacities so as to improve access to the gas from Algeria to Italy via Tunisia, has enabled the
European market. Fishing is the second biggest source country to increase imports and consumption in line
of foreign currency after olive oil. with the national energy strategy. In 2005, the Société
Tunisienne d’Electricité et de Gaz (STEG) connected 519
For some years, the mining sector has been losing an additional 45 000 households to the national
momentum under the effect of declining reserves and distribution network.
volatile international prices. It accounts for 4 per cent
of GDP but activity declined by 2 per cent in 2005. In 2006, the manufacturing sector was in second
It should stabilise at 2.4 per cent in 2006. The place after services and represented 19 per cent of GDP.
Compagnie des Phosphates de Gafsa (CPG) operates It registered a growth rate of 7 per cent thanks to the
seven open air quarries and an underground mine to good performance of the engineering and electrical
produce 8 million tonnes of phosphates annually, a total industries (up 13.3 per cent), and food processing (up
which puts Tunisia in fifth place among producer 13.5 per cent). The textile, clothing and leather sector,
countries. In the energy field, real growth was 24.7 per on the other hand, fell victim to unfavourable
cent in 2006, compared to 46.5 per cent in 2005. developments at global level with the end of the Multi-
Annual oil and gas production was 3.3 million tonnes Fibre Agreement (MFA), the conclusion of numerous
of oil equivalent. Reserves are estimated at 42 billion partnership agreements between the European Union
tonnes. On average, Tunisia exports 2.5 million tonnes and central and eastern European countries and China’s
of crude oil annually and imports more than 1 million membership of the World Trade Organisation (WTO).
tonnes. It covers only 46 per cent of its needs but The sector contracted by 3 per cent in 2005 and by
exploration of other potential reserves is continuing. 2.5 per cent in 2006. With the loss of the tariff
Several offshore exploration projects are in progress and protection which enabled it to export 80 per cent of
many multinationals such as BG (British Gas) Tunisia its products to Europe, Tunisia has had to cope with
and Shell have made major investments in this field. the end of quotas and stiff competition from Chinese
products. In the years to come, the sector’s growth will
A law passed in November 2006 has enabled the also be affected by keen internal competition resulting
national company ETAP to obtain operator status, from the free trade agreement between Tunisia and the
allowing it to carry out exploration work in Tunisia and European Union. Before the end of the MFA the textile

Tunisia

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 6.2 7.4 2.1 7.0 7.0
Private 20.7 16.0 1.4 7.5 10.0
Consumption 76.4 79.3 3.0 5.7 6.3

Public 15.6 15.5 0.9 4.3 5.0
Private 60.8 63.8 3.4 6.0 6.6

Exports 43.0 48.0 1.5 5.4 4.2
Imports -46.4 -50.6 1.0 5.0 6.7
Source: Institut National des Statistiques data ; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/814456541301
sector represented about 50 per cent of Tunisian exports, nevertheless modest compared to those of such
revenues of €3 billion per year, 250 000 jobs and 2 000 Mediterranean competitors as Turkey, Morocco and
companies. According to the textile technical centre Egypt. To improve the situation, Tunisia is actively
Cettex, about 6 000 jobs disappeared between the diversifying the tourism products and markets it offers.
520 second half of 2005 and the first half of 2006. This figure With 1 600 kilometres of coastline, Tunisia has sought
was nevertheless lower than the 100 000 job losses to modernise its ports to benefit from the boom in cruise
forecast by the World Bank. Non-manufacturing tourism in the Mediterranean. A terminal dedicated to
industries nevertheless continued to progress, thanks cruise tourism is under construction in the port of La
to growth in the building and civil engineering sector Goulette. Tunisia is also going into ecotourism. It is
where growth was 8.7 per cent in 2006. counting on the diversity and the richness of its
landscapes and its archaeological sites to develop this
Services contributed 54.8 per cent to current GDP new form of tourism which combines the discovery of
in 2006 compared to 55.2 per cent in 2005. These the country’s natural beauty with the development of
percentages are forecast to grow to 60.5 per cent in 2011 cultural ties and respect for the environment.
and 63.9 per cent in 2016. The tertiary sector is the
principal jobs reservoir. The growth rate was 10.7 per The development strategy adopted by Tunisia is
cent in 2005 and was forecast to reach 9.7 per cent in based on the use of exports and domestic demand as
2006. Within this sector, the share of engines of growth. Domestic demand makes a major
telecommunications, which represented a relatively contribution to nominal GDP growth. In 2005, it
low 5.3 per cent share of GDP in 2006, is the most accounted for 4.4 per cent of 7.2 per cent total growth.
dynamic component. It showed growth of 27 per cent This growth is principally attributable to consumption
in 2005 and 21 per cent in 2006. and, to a lesser degree, investment, which is estimated
to have made a more modest 1.1 per cent contribution
As the engine of the Tunisian economy, tourism to growth. Public consumption is relatively high. It
represented 6.5 per cent of GDP in 2006 and registered represented 15.5 per cent of GDP in 2005. As for gross
growth of 7.6 per cent, compared to 10.4 per cent in capital formation, it grew at a lower rate than that of
2005. In 2005, a record 6.4 million visitors and 36.3 GDP, to give an investment level of 23.4 per cent. In
million overnight stays were recorded, lifting tourism 2007 and 2008, growth levels should increase and that
revenues to a total of 2.6 billion. These revenues are of private investment in particular.

Tunisia
Macroeconomic Policies number of problems related to the capacity of the

economy to find alternative revenue sources to make
Fiscal Policy up for the fall in customs duties. Moreover, offshore
companies, which focus partially or wholly on exports,
The budget deficit is estimated at 3 per cent of benefit from a wide range of advantages which weigh
GDP in 2006 – 0.4 per cent more than in 2005. It on the state budget via tax exemptions, customs facilities
should stay at 3 per cent in 2007 and is forecast to and the financing of transport costs. All these
increase to 3.3 per cent in 2008. The increase in the considerations have persuaded the government to seek
2006 deficit is principally due to the impact on the compensation through the imposition of other duties
budget of the increase in oil prices, which resulted in and taxes on the consumption of local products and
additional subsidies representing 0.7 per cent of GDP. services such as telecommunications. In 2007, the
To limit the effect of consumer subsidies on oil products, government is planning to widen the scope of taxation
the government increased the price of oil at the pump on company revenues, while at the same time reducing
and encouraged energy savings in all sectors. Between the rate of taxation from 35 per cent to 30 per cent
February 2005 and July 2006, the price of oil products and even 20 per cent for companies listed on the stock
increased six times to give an overall increase of close exchange. It is also looking to simplify value added tax
to 30 per cent. Oil product prices should be completely (VAT) by abolishing the 29 per cent rate, facilitating
deregulated in the years to come. loan repayment facilities and reviewing tax incentives
available to priority and offshore businesses.
Fiscal revenues are under pressure from the
increasing share of revenues represented by export Spending stands structurally at a high level with two
sectors enjoying a favourable tax regime, the fall in major categories: salaries which represent more than 521
customs revenues caused by free trade agreements and 12 per cent of GDP and debt servicing, which accounts
the privatisation of profit-making public sector for 2.9 per cent of GDP. In 2006, increases in domestic
companies. All these factors pose challenges to be met. petrol prices reduced the cost of subsidies but many
The share of tax revenues in GDP is set to fall regularly products, particularly foodstuffs such as bread, milk,
- from 25 per cent in 2005 to 24.2 per cent in 2006, cereals and oil, are still subsidised. It is, nevertheless,
24 per cent in 2007 and 23.9 per cent in 2008. Tunisia’s proving difficult to reduce the wage bill, given the
commitment to trade liberalisation is also posing a needs of the health and education sectors for more

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 15.5 14.7 14.8 15.3 15.1 15.1 15.2
Other revenues (including oil) 5.7 5.9 5.8 6.0 6.1 6.1 5.9
Grants 0.4 0.2 0.2 0.2 0.2 0.2 0.2
Interest 3.1 2.8 2.8 2.9 2.9 2.7 2.7
Primary balance 2.5 -0.3 0.5 0.3 -0.1 -0.3 -0.7

Overall balance -0.6 -3.2 -2.3 -2.6 -3.0 -3.0 -3.3
Source: Budget data ; estimates (e) and projections (p) based on authors’ calculations.
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Tunisia
better qualified and better paid senior staff. In July however, that the current phase of controlled floating
2006, moreover, minimum salaries were increased by is an intermediate stage which should lead in the normal
around 3 per cent. The guaranteed minimum wage course of events to a full floating exchange rate and total
(SMIG) rose from 224.224 dinars to 231.296 dinars convertibility of the dinar. The most optimistic scenarios,
and the daily agricultural salary (SMAG) was increased however, do not see this measure being adopted before
by 0.22 dinars. These increases were also applied to 2010. The phase of total liberalisation of portfolio
retirement pensions and state payments to people investment and investment by Tunisian companies
without resources. As for the public debt, although abroad looks likely to be delayed until the monetary
the budget situation is viable, it needs to be reduced and financial system has been strengthened, modernised
to less than 50 per cent of GDP in the medium term and restructured via mergers and privatisations.
to allow budget constraints to be relaxed. The
government is using part of its receipts from privatisation On the commercial banking side, private sector
to repay certain loans with the aim of reducing financing was for many years channelled into priority
outstanding public debt from 58.4 per cent of GDP sectors such as tourism. The result was that there was
in 2005 to 55.6 per cent in 2006 and 54.5 per cent in over-investment in these sectors with high levels of
2007. Medium and long-term external debt is to be bad debts.
brought down from 54.4 per cent to 48.3 per cent and
46 per cent over the same period. External Position
Monetary Policy The association agreement signed with the EU in

1995 provided for the creation of a free trade zone in
522 From the monetary policy point of view, price 2008. At that time, European industrial products will
stability is the principal objective of the Banque Centrale come on to the Tunisian market without duties, while
de Tunisie (BCT), which now has available a system Tunisian industrial products have been able to enter
for fine-targeting inflation. Calculated on the basis of the EU market free of duty since 1998. In 2007,
the consumer price index, the inflation rate stood at negotiations on the liberalisation of trade in agricultural
2 per cent in 2005 but increased to 4.5 per cent in 2006. products and fish, of services and of company
This increase was due largely to an 8.9 per cent increase establishment rights should resume. Greater openness
in fuel prices and a 9.2 per cent increase in the price towards the outside world is one of the principal
of construction materials but also to imported inflation components of the development strategy of Tunisia,
resulting from the depreciation of the national currency which has recently completed numerous trade
in relation to the dollar. Faced with these inflationary agreements. In 2006, a free trade agreement with Turkey
tendencies, the BCT sought to absorb excess liquidity came into force and several other agreements were
in the financial system in September 2006 by raising adopted, including the pan-European cumulation
its official market rate from 5 per cent to 5.25 per cent system of rules of origin. To soften the effects of the
and its obligatory reserve rate from 1.5 per cent to end of the MFA on the economy, Tunisia was given an
3.5 per cent. Inflation should be reduced to 2.7 per cent exemption which allows it to export clothing produced
in 2007 and 2.3 per cent in 2008. in Tunisia using intermediate products originating
from countries participating in the cumulation system,
As regards the exchange rate, the government sought which is to say member countries of the EU and the
until the end of the last decade to target the real effective European Free Trade Association (EFTA) and Turkey.
exchange rate. Since 2000, however, the BCT has The cumulation system will be extended to countries
limited its interventions on the exchange rate market. which have signed the Agadir Agreement when this
The greater flexibility this has allowed has resulted in comes into force, which should in principle be before
depreciation of the exchange rate and greater export the end of 2007. This agreement should establish a free
competitiveness. The government takes the view, trade zone between Tunisia, Morocco, Jordan and

Tunisia
Egypt. Tunisia and Morocco have signed cooperation to €7.5 million when the partnership agreement was
agreements in the fields of transport, seismology and signed in 1995.However, the agricultural products
agriculture. A commercial and economic cooperation exported to the EU are not reaching their quota levels.
agreement was also signed by Tunisia and the United In 2006, the level of takeup of the quotas was 79 per
Arab Emirates at the start of 2006. Tunisia and China cent for olive oil, 60 per cent for citrus fruits, 50 per
concluded a scientific and technological agreement. cent for wine, 34 per cent for flowers, 13 per cent for
This provides for cooperation in the production of potatoes and five per cent for apricots. The low level
nuclear energy, the management of arid regions, marine of exports is essentially attributable to insufficient
technology and textiles. Tunisia is actively involved in production but also to relatively high transport costs,
the process of integrating the Maghreb countries into particularly for flowers. Other factors such as non-
the Arab Maghreb Union (AMU) despite certain respect of standards, traceability, grading, storage
political differences and the similarity of the products conditions and failure to meet export market hygiene
exported by the Maghreb countries. In 2006, Tunisia and other requirements also act as a brake on the
also strengthened its bilateral agreements with Malta. development of exports.
Both countries are members of the “5+5 dialogue”,
the forum of cooperation formed by five Maghreb Tunisia ended 2005 with a deficit of €2.1 billion,
countries and five southern European countries involved representing 6.8 per cent of GDP and down on the
in the Euro-Mediterranean process. 8.6 per cent of GDP registered in 2004. In 2006,
however, the deficit deepened again to 7.4 per cent of
Financial cooperation with the EU has been positive GDP. It is expected to reach 9.1 per cent of GDP in
for Tunisia, which has seen funds totalling €946 million 2008 following the opening of the Tunisian market to
come into the country between 1995 and 2006. This international competition. Textile exports fell 4.2 per 523
represents an average of €90 million worth of subsidies cent in the first half of 2006 – the biggest fall since the
per year, over and above credit accorded by the European end of the MFA in January 2005. The statistics for the
Investment Bank (EIB), of which Tunisia is one of the second half of 2006 were more encouraging, however,
principal beneficiaries. Between 2000 and 2006, Tunisia thanks to the return of a large part of Tunisia’s customers
received nearly €240 million per year. In 2006, €155 in response to late deliveries and quality problems in
million was made available for micro-lending, electricity the Far East. The deficit was also the consequence of
production and sanitation projects. The EU is by far an increase in imports of oil products and capital
Tunisia’s biggest trading partner, accounting for two equipment.
thirds of direct foreign investment, three quarters of
foreign trade and 80 per cent of public development aid. Tourist revenue increased only slightly in 2006 but
enough to put the balance of services into surplus at
During the last six years, the volume of trade with 5.6 per cent of GDP and to compensate for the trade
the EU has doubled to reach €14.7 billion, compared deficit in the current account balance. Transfers have

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -10.9 -9.1 -8.6 -6.8 -7.4 -7.4 -9.1

Services 7.5 6.2 5.9 5.8 5.6 5.0 5.1
Factor income -0.4 -4.4 -5.4 -6.0 -5.2 -4.8 -4.8
Source: IMF data ; estimates (e) and projections (p) based on authors’ calculations.
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Tunisia
also increased strongly in recent years and notably opened new subsidiaries, such as the Banque Tuniso-
revenue transfers from Tunisian expatriates. In 2005, Saoudienne de Financement or the Banque Tuniso-
they stood at 1.8 billion dinars (more than €1 billion) Qatarienne. The United Arab Emirates group Abou
– 1.4 per cent more than in 2004. The second biggest Khater is also to invest $5 billion in a 250 hectare
source of foreign exchange after tourism, these transfers sports centre in the Tunis region.
represented 5 per cent of GDP. Nearly 89 per cent of
repatriated assets come from European countries, which Reduction of external debt is another priority at a
account for 83 per cent of the Tunisian community time when the foreign loans contracted by the state
abroad, amounting to 934 000 people or 10 per cent represent nearly two thirds of the total public debt. In
of the Tunisian population. this way, about $1.5 billion generated by the
privatisation of Tunisie Telecom should serve to help
From a direct foreign investment point of view, pay off the external public debt, which was estimated
Tunisia is attracting unprecedented interest from the at $19.2 billion or 69.5 per cent of GDP by the
monarchies of the Gulf. Their investments in services, International Monetary Fund (IMF).
tourism and banking have more than doubled in recent
years. In 2005, they represented more than 200 million Despite this relatively high ratio in relation to
dinars (€120 million), 53 per cent more than in 2001, countries with a comparable sovereign credit rating, debt
when they totalled 97 million dinars (€58.2 million). service remains at a relatively stable level at about 15 per
In 2006, Arab capital accounted for more than 20 per cent of exports. Since 1994, Tunisia has been classed
cent of all investment. In the financial sector, the Arab among the safest emerging countries for international
investment banks are expanding. Several of them have borrowing and benefits from the top borrower rating.
524

70
60
50
40
30
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: World Bank and IMF.

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Tunisia
Structural Issues which forbids export subsidies. The disappearance of

the offshore regime should most affect the textile sector
Recent Developments which is its principal beneficiary. There are about 2 500
offshore companies in Tunisia. They are 66 per cent
The government, which aims for higher growth owned by private foreign capital and devote 80 per
levels in an increasingly open economy, sees private cent of their production to export. In general, private
sector development as a challenge to be taken up. At investors are hampered by the weight of bureaucracy
the same time, a more dynamic private sector depends and very difficult access to financing and credit.
on the development of the institutions and
improvements to the business climate and, in these At the end of 2005, 3 410 companies out of a total
two fields, reform is stagnating. Great efforts were 10 000 had joined the modernisation programme.
made to reduce companies’ production costs in the Among these, 2 200 had received approval for
form of faster trade liberalisation and simplified customs modernisation plans, generally comprising updating of
and administrative procedures through computerisation. equipment, reorganisation of production systems,
In 2006, Tunisia was in first place among African personnel training and quality control, for a total cost
countries for competitiveness and 30th position of 3.4 billion dinars ($2.6 billion). Most companies are
worldwide, after being rated 37th in 2005, according satisfied with the renovation programme, although
to the global competitiveness index developed by the some have delayed implementation of their investment
World Economic Forum. However, this index takes into plans because of the economic situation, financial
account the relatively good performance of problems or administrative obstacles.
macroeconomic indicators in Tunisia. The World Bank’s
Doing Business Index, on the other hand, indicates that The privatisation programme began in 1987 but 525
Tunisia has fallen three places, dropping from 77th has accelerated over the last decade. During the 1987-
position in 2005 to 80th position in 2006. In the same 94 period, 48 companies were privatised for receipts
way, Transparency International’s corruption perception totalling $134 million. By comparison, between 1995
index shows that Tunisia’s position has deteriorated and 2005, 194 companies were sold to the private
over the last two years. In 2005, the country was 43rd sector for a total of $1.8 billion. In 2006 alone, the
out of 158 countries. In 2006, it fell to 51st out of 163 government received $2.25 billion from the sale of a
countries. The business climate has lost ground, 35 per cent stake in Tunisie Telecom to Dubai Tecom-
therefore, above all in authorisation management, Dig. It was the biggest privatisation ever carried out in
guarantee acquisition, investor protection and tax Tunisia. Set up in 1995, Tunisie Telecom has 1.2 million
payments, for which Tunisia is among the lowest classed fixed network subscribers and 2.5 million mobile
at international level. The business environment could telephone subscribers. It shares the market with
therefore be markedly improved, notably through a Tunisiana, which belongs to the Egyptian group
reform of the judicial system which seems to be Orascom and is the only private GSM operator in
fundamental. Tunisia. The government’s decision not to give Tunisie
Telecom a stock exchange listing nevertheless
Foreign investment could be encouraged by the disappointed those who argued fervently for a more
elimination of the need for prior authorisation for the liberal approach. In 2007, the airline Tunisair should
acquisition of small and medium-sized companies and be privatised.
for the purchase and renting of land and premises in
industrial and tourist areas. The current offshore regime In July 2006, Tunisia obtained 115 million dinars
should be replaced in 2008 by a Euro-Mediterranean (€69 million) in Arab financing for the construction
regime, which will provide less generous fiscal allowances of a natural gas-powered, combined cycle 400 megawatt
than the existing ones. The current regime runs counter electric power station near Gabès in the south east of
to the rules of the World Trade Organisation (WTO), the country. The financing represents about one third

Tunisia
of the estimated 360 million dinar ($216 million) all, waste. The authorities are making a ongoing effort
cost of the power station. An agreement has also been to modernise drinking water supply lines and
signed with India for construction of a plant for the distribution networks, to improve sanitary accessories
production of phosphoric acid for the Indian market. such as taps and flushing systems, to educate users and
The capital of the Société Tuniso-Indienne des Engrais particularly big consumers such as hotels and companies
(Tifert) stands at €54 million, while total investment in water conservation and to revise water tariffs through
planned comes to €134 million. The new company the use of rates which rise progressively according to
will have an annual production capacity of 360 000 the quantity consumed.
tonnes of phosphoric acid and should be operational
by the end of 2009. The drinking water and sanitation sector is entirely
in public sector hands. It is highly centralised but has
The financial sector also saw major changes in produced good performances. Only 18.2 per cent of
2006. The statutes of the Central Bank have been water was not accounted for in 2004 and more than
reformed and its role modified. Indicators relating to 99 per cent of bills were paid, while all Tunisian towns
bad debt have improved. During 2005, the level of and cities had permanent access to drinking water.
unproductive loans fell from 23.75 per cent to 21 per
cent and the ratio of doubtful loans held by the public Drinking water and sanitation pricing is not used
sector banks dropped from 27.4 per cent in 2004 to as a means of resource distribution or demand
22.1 per cent in 2005. At the same time, provisions for regulation. It is considered rather to be a component
bad debt increased slightly from 45.8 per cent in 2004 of cost recovery but also as an instrument for helping
to 46.4 per cent in 2005 and 48.4 per cent in 2006. the poor to gain access to the service. In this way, water
526 The objective is to reach a level of 70 per cent in 2009. pricing does not cover costs and this above all in lower
The government is looking to improve management consumption bands. The origin of tariff changes and
at the public sector banks through privatisation and even the composition of the tariff are not always
mergers between existing bank, restructuring non- communicated to users. The tariffs applied to drinking
productive loans in the tourism sector and reducing the water and sanitation are differentiated according to
level of doubtful loans to 10 per cent by 2009. type of usage – domestic, industrial or tourist – and
by consumption band. The single bill which is sent to
Access to Drinking Water and Sanitation subscribers to the water and sanitation services comprises
services provided by several organisations. Water is
With three quarters of its territory in arid to semi- provided by the Société Nationale de Distribution des
arid zones, Tunisia is a country with a water deficit. Its Eaux (Sonede), sanitation by the Office National de
resource potential has nevertheless shown remarkable l’Assainissement (ONAS) and the government collects
development. Available water resources rose from the taxes. The water and sanitation charges are split into
2.6 billion m³ in 1990 to 4.1 billion m³ in 2005. a fixed part and a part which varies according to the
Several new hydraulic infrastructures – 11 big dams and volume of water consumed. The fixed part is supposed
11 hill barrages – are programmed for construction over to cover the cost of maintaining the network. The last
the next few years with a view to increasing water tariff revision dates back to 23 February 2003, which
supply. The country’s needs in water are estimated at itself followed a five-year price freeze. This revision
4.85 billion m³ per year, however, and exceed supply. had a marginal effect on the fixed element and had no
To make good the deficit, the Tunisian authorities have impact on the lowest consumption bands in line with
adopted a water resource management strategy based the social aid principle. For other consumption bands
on the following principles: i) re-use of treated and usage types, the fixed price was increased at intervals.
sewage for agriculture; ii) re-use of drainage water; The level of the variable part of the tariff is set according
iii) development of water saving techniques in order to the quantity of water consumed via five bands based
to avoid losses between production and use and, above on consumption in cubic metres. The tariffs applied

Tunisia
rise progressively according to usage type. This Between 1990 and 2005, the number of people without
differentiation of tariffs by consumption band and access to these services was reduced by half. All
type of use has made it possible for some users to be inhabitants of towns and conurbations have healthy
subsidised by others. drinking water. In rural areas, the access level was
88.4 per cent in 2005 and 91.6 per cent in 2006. In
ONAS’s financial results are in structural deficit and urban areas in 2006, 98.5 per cent of households were
have suffered a deterioration which has been critical since connected to drinking water and, in rural areas, 53.4 per
2002. The deficit represented 35 per cent of turnover cent were connected. The number of people benefiting
in 2004 compared to 18 per cent in 2002. ONAS’s from these services in 2006 was 9.9 million, of whom
income comes essentially from user fees, the contribution 3.2 million live in rural areas, compared with 7.5
of which to cost recovery is low as a result of the tariff million in 1994. In urban areas Sonede and in rural
freeze. The principal operating costs are debt repayments areas,the rural engineering department are responsible
and personnel charges. The contribution of the state for providing water and ensuring that the population
to the financing of ONAS’s activity is insufficient to has access to this resource. With regard to sanitation,
carry out major investment programmes, finance ONAS has the task of equipping all towns and cities
operations and meet rehabilitation needs. This problem and rural areas with collection networks and sewage
risks affecting the quality of service provided by ONAS. treatment stations. In 2004, 208 million m³ of waste
For each cubic metres of water evacuated, the state water were collected by the public sanitation networks
grants an indirect subsidy to each user to enable ONAS and 193 million m³ were treated in 71 sewage stations.
to cover its operating charges. In 2004, this contribution In 2004, six additional communes were covered and
represented 56 million dinars or 64.9 per cent of user the number of sewage stations increased from 514 to
charges. This contribution is a major one in so far as 553. Investment is essentially financed by the state. The 527
it exceeds the average price of a cubic metre of waste level of connection of households to the network rose
water paid by households. from 59.9 per cent in 1994 to 80.9 per cent in 2006.
In urban areas, the number of households connected
With regard to drinking water, a revision of the to the ONAS network rose from 0.67 million in 1994
structure of the tariff table has enabled Sonede to to 1.25 million in 2005, representing 5.3 million people
balance its finances and even generate a surplus. The on the basis of 4.24 persons per household.
cost of drinking water is low up to a consumption of
70 m³. The share of sanitation in the overall bill varies In July 2006, Tunisia was granted a World Bank
from 21 per cent to 46 per cent for domestic users and loan of $66.8 million for a sanitation project in the
varies from 32 per cent to 42 per cent and 49 per cent western part of Tunis and for the improvement of waste
for industrial users according to whether the level of water re-used for irrigation. The European Investment
pollution is low, medium or high. In the tourist sector, Bank (EIB) also granted Tunisia a 68 million dinar
however, it exceeds the share of drinking water at 54 per (€40 million) loan for sanitation projects in five areas
cent. close to Tunis and in several towns in the southern and
eastern parts of the country.
An Institut National des Statistiques study of
household spending carried out in 2000 showed that
the water bill represented 0.93 per cent of total spending Political Context and Human
per person, which is well below the generally accepted Resources Development
level of 3 per cent.
Despite some signs of liberalisation such as the
In Tunisia, access to drinking water and sanitation freeing of certain prisoners and the authorisation given
is a priority and the corresponding Millennium to the president of the Tunisian human rights league
Development Goal objective has already been attained. to visit prisons and detention centres, Tunisia has

Tunisia
performed poorly in terms of political governance and capacities of the young to create companies in different
freedom of expression. In June 2006, a resolution was sectors, helped by state aid in the form of exemptions
voted by the European Parliament expressing concern from social security charges and other employment
over the state of human rights and liberties in Tunisia. costs during the first two years of the life of small and
The parliament asked Tunisia for explanations medium-sized companies.
concerning the banning of the congress of the Tunisian
human rights league and acts of violence committed Health and social security indicators showed
against league activists and Tunisian magistrates. The improvement in 2005. Life expectancy at birth increased
country will have to resolve this paradoxical situation from 73.4 to 73.5 years between 2004 and 2005. The
in which gains in economic and social development number of inhabitants per doctor fell from 1 150 in
outstrip its performance in the fields of civil liberties 2002 to 1 013 in 2005 and should come down to
and political rights. The majority of Tunisians see the 1 000 in 2006. The infant mortality rate also fell from
lack of political liberties as the price to be paid for 22.1 per 1 000 in 2002 to 20.2 per 1 000 in 2005. The
social and economic stability and development and social security cover provided by the different regimes
for the priority the government is able to give to for workers expanded from 86 per cent of the workforce
education, health and measures to combat poverty. in 2003 to 89 per cent in 2005. Over the last three years,
public investment in medical equipment has amounted
During the last two decades, Tunisia has made to €150 million, virtually all of it for imports. This
tangible efforts to reduce poverty. The poverty level has spending has made it possible to equip all regional
diminished constantly. From 12.9 per cent of the hospitals with dialysis units, acquire sophisticated
population in 1980, it fell to 4.2 per cent in 1990. The scanners, invest in laboratories, renovate material in
528 poor have benefited, moreover, from direct and constant operating theatres, buy cardio-vascular equipment and
state assistance, notably in the form of aid to families equip the national neurological institute with
in need. Despite the great progress realised, however, microscopic surgery equipment.
disparities persist, above all between regions (the coastal
regions produce much better results than those in the Tunisia has made praiseworthy efforts in the
interior) and different socio-economic categories, education field. The share of public education spending
particularly in the fields of education and employment. in relation in GDP rose from 6.8 per cent in 2002 to
7.6 per cent in 2006. This effort has made it possible
Despite the efforts made by the government to to achieve school attendance levels of close to 100 per
reduce unemployment, it remains at a particularly high cent, with equal boy/girl levels in primary and secondary
level at an estimated 14 per cent of the active population cycles, and has reduced the illiteracy rate from 31.7 per
in 2006. The government is confronted, moreover, by cent in 1994 to 22.9 per cent in 2004. Higher education
an ever increasing number of job seekers and, in has seen rapid growth because the number of students
particular, an annual flow of 50 000 young university has tripled over the last 10 years and university
graduates. Forty per cent of graduates between the ages registrations are expected to rise for the next eight
of 20 and 24 are unemployed. At the same time, years. Tunisia has responded to this trend with innovative
employers complain that there are not enough qualified, programmes such as that for the creation of higher
competent candidates for jobs, particularly those institutes for technical studies (ISETS). There remains
requiring specialised skills. The authorities have much to be done, however, particularly with regard to
responded by setting up courses to facilitate the entry the quality and relevance of the teaching. The higher
of young graduates into the working environment. education system needs to respond to the growing
They plan to introduce greater flexibility into the demand without sacrificing the quality which is
employment market to facilitate labour redistribution necessary to improve Tunisia’s competitiveness. In
in line with the structural changes taking place in the recent years, additional resources have been allocated
Tunisian economy. They are counting, too, on the to adult education and there are currently more than

Tunisia
5 000 literacy centres in operation. Between 2004 and must also deal with the effects of demographic transition
2005, 190 000 people became literate. Despite in the education field in the form of growing teacher
considerable progress in guaranteeing the right to shortages in primary schools, rapid growth in the
education, problems resulting from disparities between student population and the poor correlation between
regions and environments and between the genders training and the needs of the employment market in
and socio-professional categories persist. The country an economy increasingly open to the outside world.
529

.
Uganda
Kampala
key figures
• GDP per capita, $ PPP valuation (2005/06) 1 562
Uganda
U GANDA CONTINUES TO MAINTAIN its standing as one supported by large inflows of official development
of East Africa’s relatively successful economies, assistance (ODA), helped to sustain growth. Indeed,
combining low inflation with high economic growth. the outcomes of the March
Sound macroeconomic
This was achieved in spite of the slowdown in the fiscal 2006 general elections eased
management and pro-market
year 2005/06, when real GDP grew by 5.3 per cent, the political uncertainty in
reforms, plus substantial ODA,
compared with 6.7 per cent in 2004/05. The slowdown the country, leading to the
helped sustain growth, though
is largely attributable to the prolonged drought, which resumption of ODA from
governance problems, including
affected agricultural production and reduced hydro- international donors.
corruption, are resurfacing.
electricity output, with negative effects on
manufacturing. In the absence of continued drought, The 2006 elections, which were the first multiparty
real GDP is projected to bounce back to 6 per cent in parliamentary and presidential elections in Uganda in 25
2006/07, which is still short of the target growth rate years, saw President Yoweri Museveni and his party remain
of 7 per cent. in power. Although the elections were preceded by a
volatile campaign period, Uganda’s political climate is now
As has been the case in the past few years, sound stabilising. However, the security situation in northern
macroeconomic management and pro-market reforms, and western Uganda remains a source of concern.
533
■ Uganda - GDP Per Capita (PPP in US $) ■ East Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Uganda - Real GDP Growth (%)
8 3500
7
3000
6
2500
5
2000
1500
3
1000
2
1 500
0 0
1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Source: IMF and local authorities’ data; estimates (e) and (p) projections based on authors’ calculations.
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Uganda
In spite of these security concerns, progress has poverty reduction efforts as income and asset inequality
been made towards improving economic wellbeing, as widens. But recently improved weather has brightened
demonstrated by increased per capita income, better prospects for agriculture, although the outbreak of foot
health services, including a huge reduction in and mouth disease in cattle highlights the continuing
HIV/AIDS infection rates, higher literacy rates and problem of crop and livestock diseases.
increased life expectancy. However, poverty and
inequality appear to be increasing. Recent surveys In the case of industrial production, electricity
indicate that the level of corruption remains high, but shortages led to a sharp deceleration of growth from
the government is taking appropriate measures to 10.8 per cent in 2004/05 to 4.5 per cent in 2005/06.
improve governance. Power outages led to production cuts and 24-hour
shift work patterns, or to the use of diesel generators,
which have substantially increased costs of production.
Recent Economic Developments High oil prices combined with low prices for Uganda’s
commodity exports also adversely impacted economic
The Ugandan economy has continued to grow performance. On the other hand, the recent discovery
rapidly in recent years. Real GDP growth in the 2005/06 of oil reserves in the country has generated optimism.
fiscal year was close to the 5.5 per cent average recorded
over the past six years. Growth in 2005/06 was largely The services sector’s share of GDP rose steadily
driven by the strong performance of the services sector, from over 41 per cent in 2000/01 to nearly 46 per
which grew at 9.2 per cent, up from 8.7 per cent in cent in 2005/06. In contrast, agriculture, which had
2005, led by road transport, telecommunications, accounted for the bulk of domestic output during the
534 financial services, tourism and air travel. past four decades, saw its share decline from 40 per
Telecommunications has been the fastest growing sub- cent in 2000/01 to 33.4 per cent in 2005/06. The
sector as a result of substantial increases in the number share of industry has remained steady at around
of mobile phone subscribers, largely the consequence 20 per cent over the past five years. Agriculture,
of an ineffective telecommunications infrastructure in which provides food security and supports rural
terms of land lines. livelihoods, is constrained by heavy concentration
on low-value crops and limited processing of raw
The prolonged drought conditions in most parts produce. In addition, agriculture is constrained by
of the country adversely affected the performance of limited access to support services such as crop and
the agricultural sector, reducing its growth rate to only veterinary extension services and food processing
0.4 per cent – the lowest annual growth in agriculture technology; inadequate infrastructure (e.g. transport,
since 1991/92. The declining trend in the growth rate electricity and water); lack of market information; and
of agricultural production could act as an obstacle to proliferation of local taxes.
Other
18.2% Agriculture
33.4%
General government
4.2%

3.2% 0.9%
Tourism
Mining and quarrying
11.3% 9.4%
1.4%
Wholesale and retail trade 9.9% Manufacturing
Electricity and water
Construction

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Uganda

1997/98 2004/05 2005/06(e) 2006/07(p) 2007/08(p)

(current prices)

Public 4.8 5.0 11.9 11.7 7.8
Private 11.3 19.9 22.4 11.8 11.4
Consumption 94.3 92.1 6.5 4.9 5.1

Public 12.9 14.4 9.6 3.1 3.1
Private 81.4 77.6 5.0 5.1 5.4

Exports 9.9 13.8 1.8 3.2 3.4
Imports -20.4 -30.7 13.6 6.8 6.6
http://dx.doi.org/10.1787/033627865084
Recent growth has been led by private investment, Following the successful completion of an IMF
which accounted for nearly 20 per cent of GDP in Poverty Reduction and Growth Facility (PRGF)
2004/05 (Table 1). Much of the increase in private programme in January 2006, the Ugandan government
investment in Uganda is in industrial and residential has recently agreed to a three year Policy Support
construction. The share of private investment in Instrument (PSI) programme, whereby the IMF
construction nearly doubled from 8.8 per cent of GDP provides surveillance and technical assistance, but no
in 2000/01 to 15 per cent of GDP in 2005/06. funding. The PSI will monitor progress towards 535
achieving the goals set forth in the Poverty Eradication
Plan (PEAP) — usually known in other countries as a
Macroeconomic Policies Poverty Reduction Strategy Paper (PRSP).
Macroeconomic policies in Uganda have three key Fiscal Policy

objectives: i) low inflation and stable interest and
exchange rates; ii) increasing credit to the private sector; The Ugandan government has over the years
and iii) enhancing the international competitiveness succeeded in maintaining prudent fiscal policies. But
of exports. the overall management of the budget is threatened by

1997/98 2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Total revenue and grantsª 15.8 19.1 22.3 20.9 19.7 18.6 17.7
Tax revenue 10.0 11.2 12.0 12.1 12.6 12.6 12.6
Grants 5.3 7.0 9.6 8.3 6.5 5.5 4.5
Total expenditure and net lendingª 16.3 23.5 23.8 21.6 21.8 21.8 21.8
Interest 1.0 1.5 2.0 1.6 1.5 1.3 1.5
Primary balance 0.5 -2.9 0.5 0.9 -0.7 -1.8 -2.6

Overall balance -0.5 -4.4 -1.5 -0.7 -2.1 -3.1 -4.1
Source: Domestic authorities’ data, estimates (e) and projections (p) based on authors’ calculations.
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Uganda
periodic pressures for supplementary expenditures and authorities is how to alleviate the impact of liquidity
higher domestic interest costs. The overall fiscal balance, sterilisation on the exchange rate of the shilling and on
excluding grants, improved marginally in 2005/06, export competitiveness.
with the budget deficit declining to 9.2 per cent of GDP,
down from 9.9 per cent of GDP in the preceding year. The average rate of inflation for 2005/06 was 5.3 per
This improvement in the fiscal balance is consistent with cent, marginally higher than the target rate of 5 per cent,
the policy of achieving gradual reductions in budget largely because of the effects of the continued rise in
deficits over the medium term. However, if grants are the world price of oil on petrol pump prices and
included, the fiscal deficit increased from 0.7 per cent transport fares. The BoU’s tight monetary policy has
of GDP in 2004/05 to 2.1 per cent of GDP in 2005/06 succeeded in containing the inflationary pressures to
(Table 2). The outlook for 2007 and 2008 was for a the point where underlying inflation in 2005/06, at 4.4
further deterioration in the fiscal position as a result per cent, was much lower than the 6.4 per cent recorded
of exhaustion of domestic sources of revenue. in 2004/05.
The government’s commitment to increasing the A noteworthy recent development is the convergence
share of the national budget funded through domestic between the ‘headline’ inflation and the ‘underlying’
resources has been made more difficult by the inflation rates. While underlying inflation hovered
implementation of the East Africa Customs Union, around 4 to 6 per cent between April 2005 and
which came into force in January 2005. The drop in September 2006, headline inflation declined from
tariffs accompanying the customs union reduced 12 per cent to 6 per cent during the same period. This
customs revenue by over 80 billion Ugandan shillings significant decline in the headline inflation rate is
536 in 2005/06, and further losses are expected in 2006/07. largely the consequence of a decline in food crop prices,
which more than offset the increase in prices of other
Monetary Policy goods and services in the consumer basket. The decline
in food crop prices can be attributed to increased
One of the primary objectives of monetary policy supplies thanks to improved weather conditions in
in Uganda is to contain inflation below 5 per cent and most food crop growing areas.
progress has been made towards achieving this objective
over the past few years. The Bank of Uganda (BoU) also Interest rates in 2005/06 were generally lower than
conducts monetary operations with a view to minimising in the preceding year. For example, the yield on the
instability in the money and foreign exchange markets1. three-year bond fell from 15.5 per cent in June 2005
Sterilised intervention is practised through a combination to 13.5 per cent in March 2006. Similarly, the effective
of sales of treasury bonds, treasury bills and foreign yields on the 91-day, 182-day, and 364-day treasury
exchange. The BoU also uses repos (repurchase bills in April 2006 averaged 7.9 per cent, 8.4 per cent
agreements) as an instrument to smooth out unexpected and 10 per cent respectively, all lower than the
liquidity in the short run. The BoU also makes use of corresponding rates in the same period in 2005. The
rediscount rate and bank rate adjustments. government expects that its comprehensive strategy
for domestic debt management will make possible a
In 2006 the broad money supply, M2, grew by reduction in interest costs.
10.3 per cent, below the 13.8 per cent recorded in
2005, due mainly to the sterilisation of excess liquidity. By contrast, the weighted average lending rates of
However, a major issue confronting the monetary commercial banks in Uganda remained high throughout
1. Bank of Uganda Monthly Economic Report, September 2006.

Uganda
2005/06. The government has cited the following capital account surplus can be attributed to higher
factors for such an outcome in the banking sector2: inflows of foreign direct investment (FDI), which
i) the large size of the government’s fiscal deficit, which increased to $260 million in 2005/06, up from
gives commercial banks the option to invest in low-risk $245 million in the previous fiscal year.
government securities rather than lend to the private
sector; ii) the perceived high risk of lending to the In contrast, the current account balance has
private sector, especially agriculture, and the absence consistently recorded a deficit. In 2005/06, the deficit
of a credit reference bureau; iii) lack of competition and including grants increased to $218 million (2.8 per
dynamism among commercial banks which are content cent of GDP), up from $134 million (1.5 per cent of
with servicing stable ‘niche’ market segments; and GDP) in the previous fiscal year, moving closer to the
iv) high operating costs from modernisation, expanding sustainability threshold of 5 per cent. However, if
outreach and the low income base of customers. official grants are excluded, the current account deficit
in 2005/06, at 6.8 per cent of GDP (Table 3), may be
Uganda operates a flexible exchange rate policy, unsustainable.
with the Ugandan shilling allowed to fluctuate freely
in line with economic fundamentals. However, where Developments in the current account balance largely
necessary the BoU intervenes to smooth short-run reflect fluctuations in merchandise trade, which have
volatility. The Uganda shilling depreciated 4.8 per cent been characterised by widening deficits in recent years.
from June 2005 to March 2006. The depreciation was In 2005/06, the trade deficit increased to $1.014 billion,
largely caused by strong corporate demand for dollars. up from $837 million in 2004/05, an increase of 21 per
This prompted the BoU to intervene in the foreign cent. The growth in the trade deficit was essentially the
exchange market to restore stability. result of higher growth in imports than in exports. 537
While imports grew by 16.5 per cent between 2004/05
External Position and 2005/06, exports grew by 11.6 per cent during the
same period. Much of the increase in total exports was
Uganda’s external position is healthy. The overall due to the rise in export unit prices, up by 17.4 per
balance of payments (BoP) in 2005/06 registered a cent in 2005/06.
surplus of $235 million, similar to that recorded in the
previous fiscal year. The BoP surplus was largely a result Uganda continues to depend largely on a few
of the favourable capital account balance, which helped agricultural exports, especially coffee, fish, tea and
to offset the current account deficit. Indeed, the capital cotton, and thus remains vulnerable to external shocks
account balance surplus increased from $369 million to terms of trade. Exports of coffee increased from
in 2004/05 to $452 million in 2005/06. Much of the $145 million in 2004/05 to $180 million in 2005/06,

1997/98 2002/03 2003/04 2004/05 2005/06 (e) 2006/07 (p) 2007/08 (p)
Trade balance -7.4 -9.9 -9.6 -10.5 -10.7 -11.0 -11.4

Services -3.1 -4.1 -3.4 -3.9 -4.0 -3.6 -3.3
Factor Income -1.3 -2.8 -2.1 -2.0 -1.7 -1.6 -1.4

Source: Domestic authorities’ data, estimates (e) and projections (p) based on authors’ calculations
http://dx.doi.org/10.1787/774337527773
2. Government of Uganda Budget Statement 2006/07.

Uganda
largely because of the strengthening of the world price 100 percent of Uganda’s debt owed to the African
of coffee. Indeed, coffee export prices reached a peak Development Bank, the International Monetary Fund
of $1.70 per kilo in January 2006 before stabilising at (IMF), and the World Bank. Full implementation of
$1.50 per kilo by September 2006. Non-coffee exports the MDRI will reduce the country’s stock of external
increased marginally, from $642 million to $697 million debt by about 65 per cent.
during the same period, mainly as a consequence of
increases in the volumes and unit prices of fish exports. Regional integration constitutes one of the
cornerstones of Uganda’s trade policy. The government
In spite of the deterioration in the current account, has continued to consolidate its participation in regional
Uganda’s foreign reserves in 2005/06 increased by over integration activities with the objective of facilitating
$75 million, mainly thanks to debt relief arising from trade and investment in the East African Community
the Heavily Indebted Poor Country (HIPC) initiative (EAC). On 1 January 2005, the East African
and the Multilateral Debt Relief Initiative (MDRI). Community Customs Union, consisting of Uganda,
Uganda’s foreign reserves in 2005/06 covered 6.6 Tanzania and Kenya, was launched, marking the
months of imports of goods and services. beginning of a new phase in the development of the
community. Burundi and Rwanda joined the EAC in
The HIPC initiative has undoubtedly contributed 2006 as full-fledged members. The year 2005/06
to the reduction in Uganda’s external debt burden. witnessed a substantial increase in the convertibility of
Measured as a percentage of exports, external debt all three East African Community currencies. Attempts
service declined from 15.4 per cent in 2004/05 to are under way to implement the East African cross-
13.1 per cent in 2005/06. This figure does not include border payments system. In addition, in an effort to
538 the debt relief received from the MDRI, which cancelled ensure financial sector stability in the region, the three

250
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF.
http://dx.doi.org/10.1787/248053578035

Uganda
East African Community central banks have adopted are in various stages of divestiture. The Kinyara Sugar
risk-based supervision which will strengthen the financial Works and the Dairy Corporation are in advanced
sector and help mobilise and channel resources to stages of divesture while the Mandela Stadium
productive sectors. Concession, Stanbic Bank and National Insurance
Corporation initial public offerings will be completed
The focus is now on delivering tangible benefits of in 2006/07. Nevertheless, the business climate continues
regional integration. The critical factors for successful to be rated as rather unfavourable by the World Bank’s
integration exist in the sizeable market of over 90 million Doing Business indicators.
people with a total GDP of $30 billion in the region.
The Monetary Policy Coordinating Committee of the The government is considering amendments to
central banks of the partner states was mandated to ease barriers to investment, and is establishing a clear
work on a strategic plan and a road map to ensure a single policy on land use to allow flexible and full utilisation
currency for East Africa by December 2009. The of idle land. The government is preparing an Investment
Community Customs Union Management Act, enacted and Free Zones Bill to provide legal backing to the
in 2004, contains provisions for governing trade in establishment of export processing zones.
goods in the community partner states, including bonded
warehouses and export processing zones. In addition, Uganda recognises that the development of small and
it specifies prohibited and restricted imports and exports medium sized enterprises (SMEs) is crucial for
within the customs union. It also sets out legal guidelines employment and entrepreneurship. Currently, about
on the application of preferential treatment for goods 1.5 million people, nearly 90 per cent of the non-farming
imported under the Common Market for East and active population, are employed in micro and small
Southern Africa (COMESA) and Southern African enterprises. The government has since 1987 implemented 539
Development Community (SADC). The Protocol on a number of policy measures under the Economic
Free Movement of Persons, Labour Market, Services and Recovery Programme to create an enabling environment
Right of Establishment and Residence was due to be primarily for SME development. A Small-Scale Enterprise
concluded by 2006, while that on a common market Policy Unit (MSEPU) has been established in the Ministry
is expected by December 2007. of Finance, Planning and Economic Development
(MFPED). This unit is responsible for the co-ordination
of all efforts to promote SMEs.
Structural Issues
Micro-finance is the main form of finance for SMEs
Recent Developments in Uganda. The government strategy is to increase the
availability and accessibility of micro-finance for the
The government of Uganda remains committed poor, especially farmers and micro and small
to structural reforms, aimed at improving the investment entrepreneurs. This will be achieved through provision
climate and increasing productivity. Past reforms have of both direct and indirect support to farmers’ groups
removed institutional bottlenecks that hindered the and the development and strengthening of savings and
development of the private sector, but investment has credit co-operatives (SACCOs).
yet to respond to the desired level. The government is
also committed to a broad-based private sector-led In 2003 Parliament passed the Micro Deposit-
growth of the economy, through reform and Taking Institutions (MDIs) Act which created a
privatisation of parastatals. By the end of April 2006, regulatory system. During 2005/06, three additional
128 divestitures had been completed using various MDIs were licensed under the MDI Act, taking the total
modes of privatisation. Twenty-four public enterprises number to four3. This development led to strong growth
3. The newly licensed MDIs are PRIDE Microfinance Limited, Uganda Microfinance Limited and Uganda Finance Trust Limited.

Uganda
in customer deposits and lending by the MDIs in Based Organisations (CBOs) are active in the provision
2005/06. of water and sanitation services (construction of facilities,
community mobilisation, training of communities and
Official unemployment is relatively low, and is local governments, hygiene promotion as well as
found mainly in urban areas, particularly among the advocacy and lobbying). In August 2006 the Uganda
most highly educated and amongst women. But under- Water and Sanitation NGO Network (UWASNET)
employment is widespread, affecting 65 per cent of all had a membership of 150 NGOs/CBOs implementing
adults, and 75 per cent of women. projects in the sector. The UWASNET secretariat is
supported financially by the government and
Access to Drinking Water and Sanitation development partners.
Uganda lies almost wholly within the Nile Basin The water and sanitation sector has mechanisms for
and most of its water resources are shared with other monitoring and evaluation. There are 70 surface water-
countries. The water resources are governed by a number monitoring stations, 16 groundwater water-observation
of agreements and conventions on international waters wells, 112 water quality sampling sites and 18 climatic
although not all are ratified. These include the Protocol stations. A water quality and pollution control laboratory
for Sustainable Development of Lake Victoria and the has been established and equipped. In addition a Quality
Lake Victoria Basin Commission (LVBC), East African Assurance (QA) system has been established, including
Community (EAC), Global Water Partnership (GWP), audits and an external proficiency scheme to ensure
African Water Facility (AWF), Nile Basin Initiative performance to international standards and obtain
(NBI), and African Ministers Council on Water accreditation of the laboratory is in process.
540 (AMCOW) programmes. Uganda also participates in
international, regional and basin-wide groupings such Transparency has improved in the award of contracts
as the Technical Cooperation Committee for the at the central government level through properly
Promotion of the Development and Environmental constituted contracts committees. Each of the
Protection of the Nile Basin (TECCONILE), Inter- committees is assisted by procurement secretariats that
Governmental Agency for Drought (IGAD), Kagera are supported by trained and qualified professionals.
Basin Organisation (KBO) and Lake Victoria Fisheries The committees are largely independent of political
Organisation (LVFO). patronage or interference and report to the Public
Procurement and Disposal of Assets Authority
The overall responsibility for formulating national (PPDAA). This body has the mandate to oversee and
water policies in Uganda rests with the Ministry of supervise all procurement activities countrywide. Hence
Water, Lands and Environment (MWLE), implemented there is a large degree of autonomy and independence
by the Directorate of Water Development (DWD) and of decision-making in the procurement process as a result
National Water and Sewerage Corporation (NWSC). of reforms in the procurement sector that began in
At the local government level, the districts, towns, and 1998. However, the situation is different for contracts
sub-counties, together with the local communities and awarded by district tender boards, which lack capacity
non-governmental organisations (NGOs), are and qualified manpower and are open to political
responsible for implementing, operating and influence from local councillors.
maintaining water supply and sanitation facilities.
A Sector Wide Approach to Planning (SWAP) for
Private-sector firms operate under contract to local the water and sanitation sector was adopted in
and central governments. They provide maintenance September 2002. SWAP is a mechanism whereby
services to water users in rural and peri-urban areas, and government and development partners co-ordinate
they manage piped water services in the majority of small policy and expenditure programmes using a common
towns that have piped water. NGOs and Community approach. The rural water and sanitation sub-sector is

Uganda
the most advanced in Uganda in terms of SWAP African average of 42 per cent, and comparable with
implementation. the African average of 64 per cent. In the case of access
to sanitation, the coverage rate in Uganda is 47 per cent,
In 2005/06, the government completed the which is above the East African average (27 per cent)
construction of six water systems4 and construction of and African average (42 per cent), but falls short of the
water systems is in progress in 13 towns5. In the large 95 per cent set by the MDGs.
towns where the NWSC operates, service coverage
improved from 67 per cent in June 2005 to 70 per cent On current trends, Uganda is on course to achieving
in June 2006. Unaccounted-for water losses improved the MDG target on access to water supply, but is likely
from 33.8 per cent in June 2005 to 29.3 per cent by to lag behind in the case of access to sanitation.
June 2006, and new water connections increased from Nonetheless, the government is aiming to achieve both
approximately 22 000 in 2004/05 to about 28 000 in of these MDGs as set out in its Sector Investment
2005/06 as a result of a new streamlined connection Plans (SIPs). The total investment requirements for
policy. achieving the Water Supply and Sanitation (WSS)
MDGs range from $1.5 billion to $1.85 billion in five
In 2005/06 around 550 000 people were provided key sub-sectors: rural water supply and sanitation
with improved water supplies. Between January and (43 per cent of the investment requirement), small
December 2005, NGOs provided an estimated number towns WSS (32 per cent), large towns WSS (16 per
of 113 000 people with new water sources (protected cent), water for use in production (3 per cent) and
springs, shallow wells, boreholes, gravity scheme taps water resources management (6 per cent).
and rainwater harvesting facilities). NGOs are providing
considerable assistance for improved water sources. The average per capita cost of providing improved 541
Some of them have demonstrated their ability to water to people in rural areas is $34, with considerable
innovate (e.g. domestic roof water harvesting, biosand variation between districts. There has been a steady
filters, and leverage of household investments). There increase in per capita costs arising from a marked
have also been joint NGO-government collaborative reduction in the availability of low cost options such
efforts to pilot appropriate technologies. This further as springs and shallow wells, increased expenditure on
illustrates the multi-stakeholder participation in the overheads (in part as a result of the creation of new
water and sanitation sector in Uganda. districts) and an increase in the cost of other resources
(e.g. fuel, construction materials). It is estimated that
Access to safe water and sanitation remains one of only 17 out of 53 small towns are able to cover their
the top priorities of the government. Access to water operation and routine maintenance costs.
in rural areas increased from 61.3 per cent in June
2005 to 63.4 per cent by June 2006. The government’s Funding of WSS comes from both the government
official target is to reach water coverage of 77 per cent of Uganda and donors. In 2005/06, for instance, the
in rural areas and 100 per cent of the urban population total spending on water and sanitation sector was
by the year 2015 with an 80 per cent to 90 per cent 103 billion shillings, 61 per cent of which was financed
effective use and functionality of facilities. Although by donors. A breakdown of the Medium Term
the actual coverage rate is below the target rate required Expenditure Framework (MTEF) allocation by sub-
to achieve the Millennium Development Goal (MDG) sectors shows that 47 per cent of it went to urban water
on access to water supply, it is well above the East supply and sanitation, 40 per cent to the rural sector,
4. The six water systems were constructed in Hoima, Mubende, Bujenje, Bwijanga, Kyatiri and Aduku.
5. The 13 cities are Iganga, Mityana, Mpigi, Kigumba, Apac, Pakwach, Nebbi, Soroti, Kaberamido, Sironko, Sembebule, Nagongera, and
Kangumbira.

Uganda
4 per cent to water for production, 3 per cent to water governance, but some donors remain concerned about
resources, and the remaining 6 per cent was reserved the slow progress in curbing corruption. The Ugandan
for institutional support. government has reaffirmed its commitment to good
governance as a cornerstone in its fight against poverty,
under the National Strategy to Fight Corruption and
Political Context and Human Build Ethics and Integrity in Public Offices (2004-
Resources Development 07). Implementation of this strategy is, however, fraught
with difficulties.
Uganda’s political situation appears to be stabilising
following the March 2006 multiparty elections, which Uganda continues to implement its policy of
saw the incumbent President Museveni returned to decentralisation, which began in 1993 with a vision of
office after winning nearly 60 per cent of the national creating a local government system that is democratic,
vote. The leader of the main opposition party, Kizza participatory and development-oriented. The
Besigye, came second with 37 per cent of the vote. decentralisation policy is now part of the constitution
International observers described the elections as and has an elaborate legal framework under the 1997
generally free but not fair. The opposition filed a Local Government Act. Implementation is co-ordinated
petition, and although the subsequent ruling did not by the Decentralisation Secretariat in the Ministry of
annul the election results it harshly criticised the electoral Local Government.
commission for numerous irregularities.
The decentralisation policy has been implemented
Security problems continue to threaten Uganda’s in a wide range of sectors starting with the
542 democracy, in particular the long-running conflict in the democratisation of local councils. Democratic elections
north of the country. Concerted efforts by the government have been held for office from the lowest unit – Local
to end the insurgency and restore peace in the affected Council 1 (LC1) – to the highest organ at the district,
districts have continued but long term security remains Local Council 5 (LC5). The policy has provided the
elusive. The peace talks between the government and the framework for implementing a number of government
Lord’s Resistance Army (LRA) meant to end two decades initiatives including the Poverty Eradication Action
of insurgency in Northern Uganda, mediated by the Plan (PEAP), the Plan for Modernisation of Agriculture
Southern Sudan government, are yet to yield tangible (PMA) and the National Agricultural Advisory Service
results. The cease-fire agreement concluded in June 2006 (NAADS). In a review of the policy in November 2004
was still holding in early 2007 but the biggest constraint it was concluded that decentralisation was leading the
to progress is the International Criminal Court (ICC) transformation of the political landscape of the country
arrest warrant against the leaders of the LRA, who as local leaders are now chosen through free and fair
consequently refuse to lay down their arms. elections and can be held accountable.
Transparency International’s corruption perception The number of districts was raised from 56 to 72
index (CPI) for 2005 and 2006 shows that corruption in June 2004, considerably increasing the costs of
in Uganda has marginally improved. Whilst Uganda’s administration. The government is now encouraging
ranking in the corruption league table in both years some of the districts to federate but is encountering
remained the same, at 105th position, the average CPI resistance. It remains to be seen how well the new
score edged up from 2.5 in 2005 to 2.7 in 20066. This decentralised structures will operate.
lends limited support to results from an earlier national
survey, the National Integrity Survey (2003), which For nearly a decade, Uganda has been implementing
revealed some perceived improvement in the area of a highly integrated Poverty Eradication Action Plan
6. The higher the CPI score the less corrupt a country is perceived to be.

Uganda
(PEAP). The results from the 2005/06 United Nations “special talent” and 64 special needs students were also
Household Survey (UNHS) show that poverty decreased admitted. A major expansion of the student population
from 56.4 per cent in 1992/93 to 38.8 per cent in resulted from the introduction of parallel programmes
2002/03 and to 31.1 per cent in 2005/06. This financed privately.
represents an absolute decrease in the number of poor
people from 9.8 million in 1992/93 to 8.4 million in To increase access to higher education, government
2005/06. If the five districts in Northern Uganda has set up a management committee to create a public
(Kitgum, Gulu, Bundibugyo, Kasese and Pader) are university in eastern Uganda which is expected to open
excluded, poverty decreased from 55.7 per cent in in the 2008/09 academic session. Great strides were also
1992/93 to 37.7 per cent in 2002/03 and to 28.9 per made in the field of adult education where the adult
cent in 2005/06. These figures clearly show that the literacy rate rose from 65 per cent in 1999/2000 to
implementation of the PEAP has helped reduce poverty 70 per cent in 2005/06, mainly because of improvement
in Uganda. in rural areas. A further breakdown of the latest figures
shows that male literacy rate (77 per cent) is much
The results of the 2005/06 UNHS also show that higher than the female rate (60 per cent). Uganda has
income inequality in Uganda has decreased in recent also made significant progress in the field of human
years. The Gini coefficient, which measures the extent development. The latest Human Development Index,
of income inequality, decreased from 0.428 in 2002/03 at 0.508, is higher than the average for the East African
to 0.408 in 2005/067. However, the improvements in region (0.432) and the continental average (0.495).
inequality were mainly seen in urban rather than rural
areas. Uganda continues to make progress in service
delivery in the health sector. Improvements in primary 543
Investment in education in recent years has borne health care services and construction of new health
some fruit. School enrolments for both boys and girls facilities have improved access to health care, which in
are quite high and comparable. Primary school turn has improved key health indicators. Infant mortality
enrolment is at 126 per cent for boys and 125 per cent at 77.5 per 1 000 is lower than the regional (East
for girls, much higher and more equal across sexes than African) and continental averages of 85.7 per cent and
the regional averages of 106 per cent and 94.7 per cent 82.5 per cent per 1 000 respectively. Maternal mortality,
for boys and girls respectively. But in spite of this at 880 per 100 000, is also marginally below the regional
achievement primary school completion is very low. The average (882) but well above the continental average
2005/06 UNHS compared Primary 1 (P1) attendance (622). However, life expectancy in Uganda has increased
from the 1999/2000 survey with P7 attendance in the from 43.1 years in 2002 to 51.1 years in 2005 thanks
2005/6 survey. The results show that in 1999/2000 to improved health and other social conditions. Uganda
around 1 807 000 children were attending P1 whereas has made significant progress in bringing down the
in 2005/06 only 685 000 children were attending P7. prevalence of HIV/AIDS over the years, but a recent
This implies a completion rate of only 38 per cent. national survey showed that prevalence has slightly
increased from 6.5 per cent in 2005 to 7 per cent in
In an attempt to improve the performance of 2005/06. Clearly, this calls for renewed efforts to
primary school teachers, the government increased combat the HIV/AIDS epidemic.
teachers’ salaries by 20 per cent in 2005/06. It has also
constructed libraries in 16 non-core primary-teacher
colleges. In a bid to enhance equitable access to public
universities during 2005/06, 896 students were admitted
through the district quota system; 40 students with
7. The lower the Gini coefficient, the lower the income inequality.

.
Zambia
Lusaka
key figures
Zambia
Z AMBIA’S GROSS DOMESTIC PRODUCT (GDP) grew The sharp appreciation of the kwacha experienced in
by an estimated 5.8 per cent in 2006, as a result of late 2005 and early 2006, coupled with the 2006
increased copper production, buoyant copper prices, bumper harvest, eased inflationary pressure, which
an exceptionally good agricultural performance and a averaged 9 per cent - the first time in about 30 years
strong expansion in construction. GDP growth is that Zambia has achieved
expected to remain around 6 per cent in 2007 and single-digit inflation. Favourable growth in 2006,
2008, as a result of increasing investment in mining boosted by copper production
and high demand for housing which should result in Despite the broadly and good harvests, will be
further expansion of construction. In tandem with a favourable assessment by the difficult to sustain and
favourable economic performance, the macroeconomic IMF of Zambia’s recent poverty remains persistent.
fundamentals have improved in recent years. The macroeconomic performance
government has achieved a major fiscal consolidation in the 2006 Poverty Reduction Growth Facility (PRGF)
and undertaken public-sector reforms that triggered the review, sustaining broad-based growth remains a major
cancellation of $3.9 billion of external debt in 2005. challenge. The economy is little diversified and therefore
Restored donors’ confidence translated into larger remains highly vulnerable to climatic and terms of
inflows of aid, increasingly as direct budgetary support. trade shocks. Copper mines benefit from substantial
547
■ Zambia - GDP Per Capita (PPP in US $) ■ Southern Africa - GDP Per Capita (PPP in US $) ■ Africa - GDP Per Capita (PPP in US $)
——— Zambia - Real GDP Growth (%)
7 8000
7000
6
6000
5
5000
4
4000
3
3000
2
2000
1 1000
0 0
2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
http://dx.doi.org/10.1787/562232728816

Zambia
tax holidays and generate few spill-overs to the rest of Recent Economic Developments
the economy. The living conditions of the majority of
the population are very unsatisfactory, with about Over the period 2000-05, growth averaged 4.8 per
70 per cent of the population living below the poverty cent, driven by agriculture, mining activity and
line. construction. A bumper harvest and strong copper
output together with sizeable investment, spurred by
The fact that ordinary Zambians are not feeling the rising copper prices, strengthened economic
benefits of the recent macroeconomic improvements performance in 2006, resulting in GDP growth of
clearly emerged at the September 2006 presidential 5.8 per cent.
and legislative elections. Although incumbent President
Levy Mwanawasa enjoyed a fairly large margin of In 2006, agriculture registered a growth rate of
victory, the majority of Zambians, and in particular the 3.9 per cent. After a 2004/05 season of scant rains and
urban electorate, voted against him, highlighting drought that forced the country to rely on external food
widespread discontent. The challenge for Mwanawasa’s aid, agriculture registered strong growth in the 2005/06
second and final term will be to ensure that the economic season. Good climatic conditions resulted in a bumper
benefits from the copper boom and debt relief will harvest of maize, the main staple food, of 1.4 million
begin to have a favourable impact on ordinary citizens. tonnes compared to 800 000 tonnes in the 2004/05
Major efforts should be made to ensure that the mining season. Much of the maize was bought by the Food
sector makes a greater contribution to government Reserve Agency (FRA) which purchased a total of
revenues. In parallel, the authorities need to make 400 000 metric tonnes. The favourable response of
substantial progress in improving the accountability of small farmers reflects the surplus production and the
548 public expenditure management, and in implementing attractive price offered compared with that of private
the decentralisation policy, financial-sector reform and traders. Nevertheless, the FRA has not been able to pay
private-sector development initiatives. for its purchases and in December 2006 it still owed
a large outstanding debt to farmers. This made it
Expectations were raised with the approval in late difficult for the farmers concerned to purchase inputs
2006 of the Fifth National Development Plan (FNDP) for the planting season. Partly to clear outstanding
for the period 2006-10 which details the government’s debts to farmers, the FRA exported 95 000 tonnes of
development agenda and poverty reduction programme. maize to Zimbabwe and 5 000 tonnes to the
Rural infrastructure, agriculture and tourism Democratic Republic of Congo (DRC), worth
development constitute the core of this ambitious plan, $20 million. As a result, in part, of the continued ban
which, however, has a substantial financing gap. on private-sector exports, maize prices have remained
Therefore its implementation will depend on the relatively low and stable, which is unusual for the last
magnitude of the scaling up of aid. months of the year.
Finance institutions and insurance

Agriculture, forestry and fishing
Real estate and business services 8.8%
6.3% 21.4%
Government services
8.6%
3.3% Mining and quarrying
Transport, storage and communications 4.4%
2.8% 10.9% Manufacturing
Restaurants, bars and hotels
2.9%
18.7% 11.9% Electricity, gas and water
Construction

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Zambia
Scant rains characterised the starting of the 2006/07 Lusaka International Airport. Zambia currently
season. In December 2006, the rainy season in Zambia produces more than 60 varieties of cut flowers (roses).
had generally not yet begun outside the western parts The Netherlands has been the biggest market for
of the country. Nevertheless, by February 2007 most Zambia’s roses, accounting for more than 70 per cent
of the country benefited from normal rains with the of exports. Other important markets are the United
exception of southwestern Zambia where arid conditions Kingdom, Germany and South Africa. Before the
persisted. collapse of one of the largest producers and exporters
of fresh horticultural products, Zambia’s horticultural
The commercialisation of production by subsistence industry employed more than 16 000 people (mostly
and small-holder farmers remains one of the most women) who worked at every stage in the chain of
challenging policy priorities. Farmers lack access to distribution. After the collapse, the company’s assets were
inputs at affordable prices, and credit more generally, bought by the second-biggest producer and another
and find it difficult to market their products. Therefore, entrant. This at least restored some confidence among
although the National Agricultural Policy 2004-15 about 5 000 out-growers. The main markets for
calls for promoting private-sector development in Zambia’s fresh vegetables are the United Kingdom,
agriculture, the government remains heavily engaged South Africa, Germany, the Netherlands, Australia,
in directly supporting small farmers. Through the New Zealand, Norway and France.
Fertiliser Support Programme the authorities are
providing subsidised fertilisers to small farmers, thought These sectors are 100 per cent export-oriented and
to number about 160 000, in the 2006/07 season. The they experienced financial losses as a result of the
subsidy, which has been increased from 50 per cent to appreciation of the kwacha against major currencies in
60 per cent in 2006 has been criticised by stakeholders the last few months of 2005.In order better to exploit 549
for being excessively costly and hindering the emergence the potential of the horticultural sector, much should
of an efficient fertiliser distribution system. be done to improve its domestic value chain as well.
At present, fresh produce flows in the country are
Non-traditional export (NTE) statistics indicate dominated by a fragmented, small-scale traditional
that there was a growth of about 25 per cent in 2006 marketing system, characterised by chaotic and
over the previous year, recording earnings of more insanitary markets with inadequate physical
$650 million. The engineering products sector (copper infrastructure. Ultimately, the current system is very
rods, cables and wires); primary agriculture (cotton, poorly suited to linking farmers more closely with
coffee, tobacco and maize); and processed and refined consumers to provide an increasingly reliable supply
foods (sugar, molasses and wheat flour) contributed to of quality produce. Improved market information and
most of the growth. The main markets in 2006 were marketing extension is needed more actively to link
South Africa, the DRC, Malawi, Zimbabwe, the United farmers to wholesale markets. High freight costs arising
Kingdom, the Netherlands, Switzerland, Portugal, from high and unstable fuel prices have rendered both
Kenya and Germany. sectors uncompetitive in global markets. The use of
refrigerated trucks for the South African market has been
Horticulture and floriculture have for long been a better option for the producers.
regarded as highly promising NTE sectors. Since they
are highly labour intensive, they are believed to be The honey export sector in Zambia is another
among the sectors for the government’s Poverty important agro-food system experiencing emerging
Reduction Programmes (PRPs) in agriculture. The two structural changes in regional and international markets.
sectors in the NTE sector are almost 100 per cent This sector affects the livelihoods of more than 12 000
export-focused. The floricultural sector employs nearly beekeeper households (100 000 people) most of whom
4 000 people from 22 flower farms (mostly cut flowers) live in the North-Western Province. Honey constitutes
which are located within a 20 kilometre radius of the 50 per cent of these farmers’ incomes and up to 70 per

Zambia
cent of their cash income. Farmers in this area earn less contains 19 national parks and 34 game management
than $0.50 per day and fall well below the international areas, covering over 22.4 million hectares, and the
poverty line. Of the honey exported from Zambia largest waterfalls in the world. Much of the tourism in
95 per cent is certified organic – Zambia currently Zambia is concentrated around the Victoria Falls in
exports about 700 metric tonnes of honey and 10 metric Livingstone. The Zambian side of the falls has
tonnes of beeswax each year and most of it is sold in experienced a boom in tourist arrivals in recent years,
the European Union. Zambia is a surplus producer of as many Western airlines have stopped flying to the
honey and could double both its exports and the originally more developed Zimbabwean side and
number of beekeepers. However, infrastructural and Western tour operators have pulled out of that country.
other trade-related and supply chain issues must be The number of overseas tourists visiting Zambia almost
addressed if this is to be achieved. doubled between 2003 and 2005, with the vast majority
of those visitors spending some time at the falls. Despite
Copper production increased by 8 per cent in 2006, these positive developments, the sector continues to face
mainly in response to buoyant world demand reflected a number of challenges.
in record high prices. Nevertheless, production, at
about 492 000 tonnes was 4 per cent down from the First, tourism infrastructure in Zambia is largely
original forecast as a result of operational problems underdeveloped, including, telecommunications,
experienced at the Konkola Copper Mine (KCM), the transport, and accommodation facilities. Hotel room
largest copper producer, and at the Mopani Copper capacity remains very low although the supply has been
Mines (MCM), the second largest. Production shortfalls growing steadily. Second, resources for the industry’s
at the biggest mines are expected to be offset by the long-term development are inadequate. Although the
550 opening of new mines in 2007 and 2008. Mopani Tourism Development Credit Facility (TDCF) was
Copper Mines launched the expansion of a smelter established by the government in 2003 to provide
which is expected to become Africa’s largest, with total affordable credit to Zambians, the small size of the fund
capacity of 850 000 tonnes of copper concentrate per (at K5 billion per year) and the large number of applicants
year. A $200 million smelter, with a planned capacity suggest that it is inadequate. Third, although tourism
of 150 000 tonnes per year is about to be built by has been identified as a form of rural development, the
China Non Ferrous Metals Group and will be completed interests of the local communities have not been fully
by 2008. In 2007 and 2008 further expansion of copper incorporated into most business models. Fourth, there
production will also result from major investments is inadequate environmental management. While the
undertaken by Equinox Resources in the Lumwana government and co-operating partners have started
mine in the North-Western province. rehabilitating park roads and airports - the airport of
Livingstone has been recently expanded and will soon
Although there was a slowdown compared to the be able to receive non-stop flights from Europe – more
growth rate of 21.2 per cent in 2005, the construction should be done to stimulate environmentally sustainable
sector registered growth of 9 per cent in 2006, driven growth in the hospitality sector.
by continuing investment in mining, donor-funded
work in road rehabilitation and real estate developments. Three foreign-owned hotels are under construction
The increasing demand for cement led to investment close to the falls. South Africa’s Legacy Holdings Limited
of $170 million, which will increase production to was awarded a Tourism Concession Agreement (TCA)
over 900 000 tonnes within the next three years. by the Zambia Wildlife Authority (ZAWA) to establish
a $260 million golf estate containing two hotels, an 18
The tourism sector continued to record positive hole golf course, marina and 450 chalets a little upstream
growth with an increase in investment and tourist of the Victoria Falls in Mosi-oa-Tunya National Park.
arrivals. The number of tourists in 2006 increased by The project, which was estimated to create 1 900 tourist
3.1 per cent to 670 000 from 650 000 in 2005. Zambia bed spaces, would enable Zambia to compete favourably

Zambia
with Zimbabwe. Livingstone now has slightly over the construction of the two hotels but rejected the
1 000 beds compared to 3 000 beds in Victoria Falls building of the golf course and the 450 chalets. It
town on the Zimbabwean side of the Zambezi River. rejected much of Legacy Holdings’ environmental
The project was estimated to bring in the country impact assessment (EIA) for the project and offered an
150 000 tourists per year and make $170 million a year. alternative site for development.
The 220-hectare project would, however, disturb Legacy Holdings appealed against the ruling to the
flora and fauna in the heritage site, cut it in two, and government through the Ministry of Tourism,
disturb the elephant movement corridor, which is an Environment and Natural Resources but the
essential part of their range. The project would also government upheld the ECZ’s decision. Legacy
severely damage plans for the Kavango Zambezi Holdings is therefore contemplating the option offered
(KAZA) Transfrontier Conservation Area, one of the by the ECZ to build on the northern part of the
most ambitious elephant conservation plans and shared Maramba river.
by Zambia, Zimbabwe, Botswana and Namibia.
The authorities intend to formulate a National
The United Nations Educational, Scientific and Tourism Development Master Plan, strengthen the
Educational Organisation (UNESCO) warned that overall public sector tourism policy framework and
such an initiative could lead to the removal of the falls promote local private sector participation.
from its list of World Heritage Sites. The project has
faced much criticism and opposition from Private gross capital formation was a major driver
environmentalists, Livingstone residents and generally of growth in 2006, especially in mining and construction
the majority of Zambians who argue that the massive and is expected to continue to show rapid growth in 2007 551
development within the Victoria Falls would lead to and 2008. The growth of investment will also result in
such deregistration. Opposition has also been expressed increased imports of capital goods. Copper exports are
by the Zimbabwean authorities who claim that their expected to continue to increase when the new
Zambian counterparts have not consulted them on production facilities come on stream in 2007 and 2008.
the issue – the Victoria Falls frontier covers Zambia,
Zimbabwe and extends to Botswana. The Growth in private consumption appears to have
Environmental Council of Zambia (ECZ) accepted risen in 2006, thanks in part to exceptionally good

1998 2005 2006(e) 2007(p) 2008(p)

(current prices)

Public 8.0 7.0 -10.2 13.0 5.0
Private 8.4 16.0 15.0 12.0 12.0
Consumption 93.9 79.9 7.8 6.4 4.4

Public 15.8 13.7 4.0 12.3 5.0
Private 78.1 66.2 8.4 5.4 4.3

Exports 28.4 33.9 6.2 4.6 6.3
Imports -38.7 -36.7 10.5 9.5 5.6
Source: IMF and Central Statistical Office data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/767456416336

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agricultural performance. The rate of growth of budgetary performance was broadly on track, thanks
government consumption accelerated in 2006 in the run- to the combined effect of reduced debt service following
up to the presidential and legislative elections. Conversely, achievement of the Heavily Indebted Poor Countries
domestically-financed public capital expenditure (HIPC) completion point and lower government
contracted to compensate and to accommodate the borrowing, which declined from 5.2 per cent of GDP
revenue shortfall stemming from the impact of the in 2003 to an estimated 1.8 per cent in 2006. Overall,
currency appreciation on trade, taxes and grants. Thus, budget execution was less successful than in 2005,
the overall budgetary stance remained prudent. affected by the re-direction of spending to preparations
for the elections and the limited absorption capacity
of some sectors, such as health and education. Poor
Macroeconomic Policies execution also reflected the carry-over of unspent
balances from previous years.
Fiscal Policy
The kwacha appreciation in late 2005 resulted in
The FNDP for the period 2006-10, was approved a net shortfall in anticipated revenue and grants of
in December 2006. The growth strategy includes 2.5 per cent of GDP in 2006 as a consequence of the
supporting rural development, especially in the reduced kwacha value of donor budget support and of
agricultural sector, encouraging stronger links between the value added tax (VAT) on imports and customs duty.
agriculture and manufacturing through agro-processing, Nevertheless, the shortfall in revenue was more than
and stimulating stronger growth in tourism. The broad offset by the reduction in capital expenditures (by
macroeconomic objectives of the plan are detailed in 2.7 per cent compared to the amount budgeted) and
552 the Medium Term Expenditure Framework 2007-09 the overall deficit is estimated at 2.5 per cent of GDP,
which projects GDP growth of at least 6 per cent in compared to the 2.6 per cent originally budgeted.
2007 and 2008, while reducing annual inflation to no
more than 5 per cent, and increasing spending under Zambia is highly dependent on donor assistance,
the budget on PRPs by at least 0.5 of a percentage which finances some 30 per cent of the government
point of GDP a year. budget. The fiscal discipline achieved in the recent
past has earned the government renewed credibility
The preparation of the plan involved greater which has led to new donor pledges to increase aid
consultation among the stakeholders and is more volumes (complementing resources released by debt
comprehensive compared with the previous PRPs. relief), improve their predictability and provide a greater
Nevertheless, the policy measures required to achieve proportion in the form of direct budgetary support.
the expected targets, e.g. to improve rural growth, are Budgetary support is expected to account for 22 per cent
not clearly defined, and the plan has an aggregate of grants in 2007, and 25 per cent in 2008, compared
financing gap of about $1.5 billion. This implies an to 15 per cent in 2006.
increase in the annual requirement for the FNDP from
$550 million to $800 million. The Ministry of Finance Better accountability and improved governance are
intends to rely on increased foreign aid and domestic the key donor conditions for scaling up direct budget
borrowing to cover the gap. This may pose a challenge support. Thus, further increases in aid are subject to
to the efforts of limiting domestic borrowing to 1 per the successful implementation of the Public Expenditure
cent of GDP in 2007, and 0.5 per cent of GDP in 2008 Management and Financial Accounting system
and 2009. (PEMFA) launched in 2005, which is considered key
to improving expenditure oversight and strengthening
In 2006, the stance of fiscal policy remained prudent budget execution. Nevertheless, progress in
in line with the fiscal consolidation efforts undertaken implementation has been slow. A key milestone of the
in the past two years. Estimates for 2006 indicate that PEMFA, the piloting of the Integrated Financial

Zambia
Management Information System (IFMIS), has incurred In 2007 and 2008 the government will continue
delays, partly because of a change in ownership of the its efforts to cut non-priority expenditures and improve
local firm originally selected to install the IFMIS. A the quality and coherence of spending. Authorities
Spanish provider was then selected in November 2006. have committed themselves to channelling significant
In addition, effective implementation of the PEMFA resources towards spending on health and education.
suffers from lack of progress in the decentralisation Spending on the former (including sizeable investment
process and in public service management, the other outlays) is expected to increase to 12.7 per cent and
fundamental pillars of the public-sector reform 13 per cent of the budget in 2007 and 2008 respectively,
programme. Much effort is needed to improve the up from 10.7 per cent in 2006. Spending on education
accountability of public spending, particularly as regards is expected to reach 16.8 per cent and 17.3 per cent of
the use of the proceeds from debt relief for poverty the budget in 2007 and 2008 respectively. The challenge
reduction programmes. In order to improve will be to improve service delivery at the local level, and
accountability, a matrix of indicators (Performance increase local authorities’ absorption capacity by
Assessment Matrix) has been put in place for review achieving concrete progress in the decentralisation
by the government and its development partners every process.
six months.
In order to consolidate the fiscal objectives in the
The government’s aid policy and strategy will be medium term, the authorities recognise the need to
approved in 2007, which should help to ensure that generate more revenue (which declined from 19 per cent
Zambia has an appropriate framework for taking the of GDP in the early 2000s to 16.4 per cent by 2006).
lead in managing and coordinating external assistance. Nevertheless, the 2007 budget will be affected by the
The aid policy is strikingly tough on technical assistance outcome of the September elections which revealed a 553
whose modalities in the past threatened local ownership strong sentiment for lower taxes. Indeed, pay-as-you-
and wants to make it genuinely demand-driven. In earn taxes contribute far more to total tax revenue than
response to the new aid policy, donors are preparing a do corporate taxes. One priority of the government in
Joint Assistance Strategy for Zambia (JASZ) which 2007 will be to increase tax revenue from the mining
reflects a new trend in aid architecture with the sector, which benefits from substantial tax concessions.
development partners focusing their support on a The main goals would be to raise mineral royalties to
limited number of sectors. The JASZ will be aligned 2.5 per cent from the 0.6 per cent which the mines
both on the FNDP and the aid policy. currently pay. It has been estimated that if the tax

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Tax revenue 17.4 17.4 17.5 17.0 16.4 16.3 17.1
Grants 6.6 7.0 5.5 5.6 4.3 4.5 4.6
Interest 3.4 3.9 3.5 2.7 2.1 1.2 1.1
Primary balance -1.4 -2.1 0.6 0.0 -0.4 -0.8 -0.7

Overall balance -4.8 -6.0 -2.8 -2.6 -2.5 -2.0 -1.8
Source: Ministry of Finance and Economic Development and IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/263510621318

Zambia
regime were the same as in Chile, the Zambian outflows prompted by the uncertainty surrounding the
government would receive an extra $800 million in elections and a wider global emerging markets sell-off.
revenue annually (12.5 per cent of current tax revenue). In the last quarter of the year, the foreign exchange
However, renegotiations of existing mining agreements market was characterised by a general depreciation of
are very difficult and subject to the willingness of the the kwacha against major currencies with intermittent
individual mining companies to modify the terms. It volatility. In order to moderate the volatility and maintain
will therefore take some time to reach a solution. stability in the value of the kwacha, the Bank of Zambia
Nevertheless, it will be important to change the tax intervened by purchasing and selling foreign exchange
provisions in new mining contracts. In the short term, in the market. Nevertheless, despite periods of
the government will try to improve tax administration depreciation, the kwacha appreciated by almost 20 per
and collection and broaden the tax base by bringing cent in 2006, to average K3 755 to the US dollar..
the informal sector further into the tax net to
compensate for a reduction in income taxes. Overall, Against the background of increased donor support,
the budget deficit is expected to decline to 2 per cent which is expected to be disbursed during the first nine
and 1.8 per cent of GDP in 2007 and 2008 respectively. months of the year, and a projected increase in the
output of copper, the current value of the kwacha is
Monetary Policy expected to be sustainable. The Bank of Zambia will
continue to maintain a flexible exchange regime,
The Bank of Zambia intends to reduce inflation intervening with open market operations to smooth out
further to the 5 per cent target set in the FNDP by undesirable fluctuations. International reserves are
controlling money supply growth, increasingly through adequate, having increased to cover 3 months of imports.
554 open-market operations. Inflation fell sharply in 2006
aided by a bumper harvest – food prices account for Despite improved macroeconomic fundamentals,
about 50 per cent of the consumer price index (CPI). lending rates remain high at about 30 per cent mainly
Inflationary pressures were also reduced by the 27 per because of structural constraints on lending experienced
cent appreciation of the currency experienced in late by the banking sector. Competition is very low and
2005 and early 2006 which offset to some extent the mainly focused on services. In addition, there is general
impact of fuel price increases. Average inflation for lack of confidence in sustained low inflation over the
2006 is estimated at about 8.5 per cent, compared medium term. To give a real boost to lending, banking
with 18 per cent in 2005 and represents the lowest regulations need to be strengthened through, among
level in the past 30 years. Inflation is expected to average other things, a revision of the bankruptcy law and
8.6 per cent and 7.8 per cent in 2007 and 2008 better contract enforcement. The government, through
respectively. The emerging inflationary pressures in the Bank of Zambia, has approved the establishment
food prices are expected to be contained by the high of the Credit Reference Bureau (CRB) which is being
inventories and to be offset by lower world oil prices. pioneered by the Bankers’ Association of Zambia (BAZ).
Possible risks to this positive outlook may, however, stem The CRB was scheduled to begin operations in early
from increased private consumption, lower than normal 2007. The bureau is aimed at providing lenders in the
rainfall, and possible fiscal policy slippages. financial sector with factual information on clients
upon which they can make decisions on whether to lend
The appreciation of the kwacha continued at a or not. Banks and other financial institutions will be
moderate pace in the first half of 2006, and mainly required to submit information about their clients to
reflected greater inflows of foreign exchange stemming make it possible to distinguish between good and
from foreign investment, increased exports from mining, defaulting borrowers. According to the BAZ, the credit
and large inflows of official development assistance. In culture has been improving as a result of declining
September 2006, the kwacha weakened against the interest rates. The Bank of Zambia believes that the
dollar, depreciating by 5.1 per cent as a result of capital licensing of the CRB will help reduce the cost of doing

Zambia
business and stimulate economic growth through OECD export destination although this is due to the
increased private sector borrowing. Also of significance fact that it is a trans-shipment point for other
is the introduction of Point of Sale (PoS) and debit cards. destinations. The third largest destination of exports
is China (7.3 per cent) which is a major purchaser of
External Position Zambian copper.
Zambia benefits from a variety of preferential market Overall, external developments in 2006 continued
access initiatives, including the European Union (EU) to be favourable, boosted by continuing high copper
Everything-But-Arms initiative (EBA) and the US prices and investment in the sector. In volume, copper
African Growth and Opportunity Act (AGOA). and cobalt exports grew by 15 per cent in 2006. Copper
Nevertheless, the stringent rules of origin of these exports still account for about two thirds of the total,
schemes, combined with serious domestic supply-side although non-metal exports, mainly cash crops such
constraints, have so far led to disappointing results. as cotton, tobacco, flowers and horticultural products,
Both initiatives have generated only negligible additional have expanded considerably in the recent past. Although
exports for Zambia compared with the pre-existing the sudden strengthening of the currency since
Generalised System of Preferences scheme. The benefits November 2005 reduced the kwacha value of
from the AGOA have been indirect, through increased agricultural exports by 30 per cent, production increased
cotton exports to South Africa, which then exports thanks to abundant rainfall in 2006. Imports continued
clothing to the US market. to increase, by 10 per cent in real terms, reflecting
sustained demand for capital goods generated by foreign
South Africa is the single largest partner country, investment and refurbishment in the mining sector
importing copper, electricity, tobacco, cotton and sugar and the appreciation of the kwacha. Overall, the trade 555
and exporting to Zambia in return a wide range of balance is estimated to have improved substantially,
capital and consumer goods. Switzerland is the main reaching 6.2 per cent of GDP in 2006.

1998 2003 2004 2005 2006(e) 2007(p) 2008(p)
Trade balance -4.8 -7.0 1.5 0.4 6.0 4.2 -1.4

Services -5.5 -5.5 -3.9 -3.3 -3.3 -3.5 -3.8
Factor income -6.6 -3.4 -7.8 -6.4 -5.2 -8.4 -6.2
Current transfers -0.8 -0.1 -0.5 -0.3 -0.3 0.0 -0.1

Source: Bank of Zambia and IMF data; estimates (e) and projections (p) based on authors’ calculations
http://dx.doi.org/10.1787/055002870087
The trade balance is expected to deteriorate slightly cost of finance and transport and limited certification
in 2007 and 2008. Copper export volume should capacity, which keep production volumes low. Lack of
continue to grow strongly at about 10 per cent but lower compliance with sanitary and phytosanitary barriers still
international prices are expected to lead to a more represents a major obstacle to expanding agricultural
moderate increase in value. Major obstacles remain to exports to the EU and US markets.
the expansion of non-metal exports which will require
improvement of their international competitiveness. Zambia’s external debt fell significantly from over
Horticulture and livestock have considerable potential $7 billion in December 2003 to less than $1 billion in
but suffer from structural bottlenecks, especially the high October 2006 after the attainment of the HIPC

Zambia

250
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008
556 Source: IMF.

http://dx.doi.org/10.1787/637377152781
completion point in 2005 and consequently promotion of the private sector, the reform of parastatal
qualification for debt relief under the Multilateral Debt enterprises and public-sector reform, especially
Relief Initiative (MDRI). Most multilateral co-operating decentralisation, took a back seat for a good half of
partners have cancelled 100 per cent of Zambia’s debt. the year.
The government intends to spend a total of
K198.7 billion from the MDRI savings in 2007 to Three major state enterprises are currently under
scale up expenditures linked to poverty reduction such negotiation leading to privatisation or
as agriculture, water and sanitation, training and commercialisation: Zambia Electricity Supply
infrastructure. As mentioned earlier, the challenge Corporation (ZESCO); Zambia National Commercial
would be to assure that monitoring mechanisms for the Bank (Zanaco); and Zambia Telecommunication
use of those savings are in place. (ZAMTEL). At the end of 2006 the sale of 49 per cent
of Zanaco to Rabobank was still awaiting signature by
the Attorney General. The closure of the deal was
Structural Issues delayed during the election period as the government
feared the opposition’s possible politically-inspired
Recent Developments claims about possible job losses or branch closures.
Such threats would have been unfounded: Rabobank’s
The momentum of Zambia’s structural reform business plan for Zambia aims to expand the number
programme exhibited during the HIPC completion of branches, possibly by 20.
period slackened in 2006. Political and financial
priorities dictated by the presidential and legislative ZAMTEL, the national telecommunication
elections and Zambia’s success in receiving full debt company, which owns the monopoly of fixed lines,
relief probably contributed to the slowdown. Thus, the international telecommunication gateway and Cell-

Zambia
Z, one of Zambia’s three mobile operators, will be to supervise bank and non-bank financial institutions
commercialised but no date has been set. Vested interests has been strengthened and capacity is being built up
associated with its monopolistic status are a key to move to a fully risk-based approach in 2007. In
constraint on progress. The government is still January 2006 the regulations governing microfinance
pondering the commercialisation strategy but hopes to institutions came into force. There has been slow
improve the regulatory framework to address barriers progress with financially troubled non-bank financial
to entry so as to enhance competition in the sector. institutions. So far only two investors have taken up
equity in the Development Bank of Zambia (DBZ) in
Problems in commercialising the Zambia which the government will retain a 25 per cent stake.
Electricity Supply Corporation (ZESCO) continue. The $2.15 million commited by the International
While progress was made in the appointment of a new Fund for Agricultural Development (IFAD) in 2005
board of directors dominated by private-sector to recapitalise the National Savings and Credit Bank
representatives, there are questions about the (NSCB) has not yet been received. The institution is
independence of the board. The chief executive was thus exploring new funding sources as it desperately
appointed by the President of the Republic of Zambia needs to resolve unreconciled balances.
and the board by the Minister of Energy and Water
Development. Plans are underway to change this so Efforts in 2006 to create a more business-friendly
that the board selects the chief executive. Zambia has environment are shown by agreement on the Private
great potential to become a major exporter within Sector Development (PSD) Action Plan and the
the Southern African Power Pool but ZESCO is adoption of the Zambian Development Agency (ZDA)
experiencing financial problems, foresees a capacity Act in May 2006, which involves the merger of five
shortfall in two to three years time and is generally agencies in charge of private-sector development. The 557
under-performing. The private sector (e.g. mobile Action Plan Working Groups – on immigration;
companies) resort to their own generators rather than administrative barriers; tourism; and public-private
wait for ZESCO to expand its network. partnerships (PPPs) – were approved by the cabinet and
the more contentious land reform issue is awaiting
The privatisation of Maamba Collieries Limited approval. A draft legal framework for PPPs is being
has been approved. The government has mandated prepared in collaboration with the South African
Zambia Consolidated Copper Mines - Investments Development Community (SADC) for February 2007.
Holdings (ZCCM-IH) to take over the operations but, Success has been registered in a short period in the
because of a large debt owed to Invetec this is still administrative barriers group where thanks to
pending. A strategic investor has been offered 30 per computerisation and the greater independence of patents
cent of the Ndola Lime Company (brick and cement) and licensing offices in certain provinces, the number
monopoly but a precondition is a large recapitalisation of days to register a company fell in November 2006
(at least $20 million).There has been no progress on to five from nine.
the privatisation of the Indeni Oil Refinery, which is
currently running at half capacity and requires fresh While most stakeholders seem optimistic about
capital investment to increase production. So far the the PSD Action Plan some business representatives
plan to attract new capital from a third equity partner criticise it for being too donor-driven and are concerned
(the government and the French oil company Total about the sustainability of the reforms once donor
would dilute their shareholdings to 35 per cent each funding has ended. Four donors support the PSD
to attract new investors) has not received any expression Action Plan through a Joint Financing Agreement
of interest. ($10 million basket fund for three years) signed in
April 2006 with the subsequent release of funds in
Some elements of the Financial Sector Development June. A total of nine donors have signed the
Plan are moving forward. The Bank of Zambia’s ability memorandum of understanding. The US Millennium

Zambia
Challenge Account will also allocate $22 million to the Access to Drinking Water and Sanitation
PSD action plan in 2007 and 2008 placing especial focus
on immigration, administrative barriers and PPPs. In Zambia has vast water resources in the form of
fact, private-sector participation in the PSD initiative rivers, streams, lakes, and groundwater. However, a
through the Zambia Business Forum (ZBF) has been pattern of declining rainfall over the years has had a
quite strong. ZBF has five representatives on the steering significant adverse impact on rain-fed agriculture. The
committee and two on the implementation committee, National Water Policy of 1994, the National
including the Chair. Environmental Support Programme, 1994, and the
Water Resources Master Plan, 1995-2015, have outlined
Despite some delays caused by the election, strategies and comprehensive action plans to develop
difficulties in deciding who will pay retrenchment costs the water sector to realise its potential for Zambia’s
and government concerns about the liabilities of the social and economic development.
five agencies to be merged into the Zambian
Development Agency (ZDA), this new agency should Improving access to drinking water and sanitation,
be operational in 2007. It is urgent that the ZDA and combating pollution of both surface and
become fully operational since as long as it is not no groundwater are dealt with through other institutional
other institution can follow up on investment matters. frameworks. The national budget continues to reflect
It also remains to be seen how independent the ZDA low government priority in funding the Water and
will be since civil servants will sit on the Board. Sanitation Sector, (WSS) shifting most of the burden
to local authorities. In the Poverty Reduction Strategy
Decentralisation is the least developed pillar of Paper (PRSP) implemented between 2002 and 2004
558 Zambia’s public-sector reform, which dates back to only 3.5 percent of the budget was allocated to the water
1993. The Decentralisation Implementation Plan sector of which only 32 per cent of the allocation to
(DIP) was adopted in February 2006 but is not being Rural Water and Sanitation (RWSS) was actually spent.
implemented and government and stakeholders have
yet to agree on how to finance it. A memorandum of The National Water Policy of 1994 is based on
understanding has been signed with donors and a principles of separation of water resources management,
consensus on the costing and modality – a under the responsibility of the Ministry of Energy and
Decentralisation Trust Fund – should be reached in Water Development (MEWD), from WSS service
early 2007. The DIP addresses both fiscal and sectoral delivery under the Ministry of Local Government and
devolution in public health, water, and education, Housing (MLGH); separation of regulatory and
where fiscal devolution is clearly the biggest challenge. executive functions; devolution of authority to local
In the past, local councils have been heavily under- authorities and private enterprise; and eventually
funded and in an ad hoc manner - Zambia’s local achieving full cost recovery for WSS through user fees.
councils are among the least funded in Africa at about
2 per cent of the national budget compared to an Following the 1994 Water Policy, the 1997 Water
average of 15 per cent. They have no consitutional Supply and Sanitation Act, established an independent
right to generate revenue and have severely limited water regulator, the National Water Supply and
capacity. The government is still undecided where Sanitation Council (NWASCO), and delegated to local
the Department of Decentralisation should be housed. authorities reponsibility to provide water and sanitation
There are proposals to bring it closer to central in their respective areas. Consequently 50 out of 72 local
government, for example in the Cabinet Office. authorities have established nine commercial water
However, it seems that many stakeholders prefer that utilities (CUs) in urban areas, which are expected in
the Ministry of Local Government and Housing the long term to be commercially viable. CUs are
oversee the implementation of the policy and house responsible for service provision to 86 per cent of the
the secretariat. urban population; the remaining areas are serviced

Zambia
either by 22 local authorities (13 per cent) or private dilapidated infrastructure and escalating population
providers (1 per cent). Commercialisation has been in urban areas.
crucial to sustaining improvement in service delivery.
Over the years, the CUs have made considerable According to the latest Central Statistical office
achievements in extending water supply coverage (from statistics, Zambia has 62 per cent coverage for drinking
58 per cent in 2004/05 to 73 per cent in 2005/06), water supply (37 per cent rural and 86 per cent urban),
thanks to the support of the Devolution Trust Fund and 27 per cent sanitation coverage (13 per cent rural
(DTF). The fund is a basket of co-operating partners’ and 41 per cent urban)2.
funds which aims at assisting the providers to extend
the provision of services to the peri-urban poor (see box). The institutional framework for rural WSS, adopted
In addition, six out of nine commercial utilities had by the government in 2004, provides a strong basis and
reached operational cost coverage by the end of 2006. key principles for effective management of services,
However, this is adversely affected by the non-payment built on devolved authority for RWSS to the local
of services by government institutions. Infrastructure authorities and communities and the WASHE (Water,
funding, in particular in sanitation1, is another major Sanitation and Health Education) concept to promote
concern and risks jeopardising the current gains in the sanitation as well as environmental health and the
urban water sector. Besides support from the German promotion of community management to ensure service
government in Southern province and North-Western sustainability. Despite all these strategies, the rural
province, the African Development Bank in Central sector remains largely neglected, in terms of government
Province, the World Bank in Lusaka, and the Danish financing. An attempt to redress this neglect has been
International Development Agency (DANIDA) in made with the development in 2005 of the National
Western Province, there is no other significant Rural Water Supply and Sanitation Programme 559
infrastructure financing in the sector in spite of the very (NRWSSP), which is the Millennium Development
A Trust Fund to improve service provision in peri-urban areas
The Devolution Trust Fund, instituted under the NWASCO, has been financing projects on a pilot
scale for CUs to improve water supply since 2003. Funds are provided to CUs to extend their services to
the peri-urban poor. A total of about 120 000 people in low-income areas have since benefited in terms of
safe and adequate water supply. During the pilot phase, detailed procedures and guidelines were developed
to make DTF operations more transparent and accountable. The establishment of the DTF as a basket fund
targeting peri-urban and low-cost areas has been lauded as the most significant initiative the government
has taken to extend water supply and sanitation services to these areas. Consequently a number of co-operating
partners have made financial commitments to support the government achieve this objective. As at end 2006,
about EUR8.8 million had been mobilised by the DTF from the Kreditanstalt für Wiederaufbau (KfW),
DANIDA, and the European Union (EU) for financing implementation of WSS projects. In the future,
there are plans to broaden the DTF mandate to water treatment investment. Nevertheless, the DTF’s scope
is limited in that it is not linked to the decentralisation process.
1. The lack of investment in sewerage infrastructure resulted in a reduced sanitation coverage in 2005/06, at about 32 per cent compared
to 34 per cent in 2004/05
2. According to the more accurate statistics from the baseline data for the peri-urban areas, the national water supply coverage for urban
and peri-urban areas stands at 67 per cent , leaving 33 per cent without access to clean, potable water.

Zambia
Goals (MDG) roadmap for RWSS in Zambia. President Mwanawasa’s government seems to have
Unfortunately the budget for the NRWSSP and the heard the warning message from urban areas, where half
water sector included in the FNDP, is still very low, at the population live and is placing renewed emphasis
about half the $148 million dollars required for the on welfare and employment creation. Sata’s proposals
implementation of the first phase (2006-10). inter alia to expel foreign investors appealed to many
Nevertheless, the NRWSS represents a positive move Lusaka-based small and medium enterprises that are
towards a sector-wide approach (SWAp) which should seeing few benefits from the government’s PSD
help to create a strong constituency advocating increased initiative. Others wanted to register their discontent with
funding for the sector; improve co-ordination and the MMD’s perceived failure to bring the fruits of
monitoring of sector resources; and help the adoption growth to the people and with worsening
of policies that favour financial viability and output unemployment.
targeting of the sector. The NRWSSP includes
implementation of the WASHE concept through several Tansparency International’s 2006 Corruption
Area Based Projects (ABP) assisted by different Perception Index places Zambia in 111th place out of
co-operating partners. At present, three ABP are going a list of 163 with a score of 2.6 (where zero equals
to be supported by DANIDA ($18 million), the African highy corrupt). After three years of investigations and
Development Bank ($25 million) and the Dutch no successful prosecutions, the Anti-Corruption Task
Co-operation Ministry ($18 million) for the next five Force mandate was scheduled to end in December
years. The funds are expected to be channelled directly 2006. Zambia’s widespread petty corruption requires
by the ministry of finance to the local authorities in urgent attention. Responsible institutions such as the
charge of RWSS planning. To ensure a successful Anti-Corruption Commission, the Office of the Auditor
560 implementation of the NRWSS it will be necessary to General (OAG), the police, and the Drug Enforcement
move ahead with the decentralisation process to Commission are gaining in strength and authority. A
strengthen the institutional and financial capacity draft National Corruption Prevention Strategy was
within local authorities. prepared in 2006 and an increase in staff in the OAG
from 100 officers to 439 enables representation in most
districts. However, they are all insufficiently independent
Political Context and Human from the executive and their inadequate budgets limit
Resources Development the number of investigations than can be undertaken.
If successful, the OAG campaign to build domestic
Presidential and legislative elections were held in demand for accountability and public awareness of its
September 2006, and were declared free and fair by role, functions and recommendations could increase
international observers. President Levy Mwanawasa’s pressure on the government to respond more swiftly
ruling Movement of Multi-party Democracy (MMD) to the Auditor General’s recommendations.
retained a large majority in Parliament (81 seats),
won 43 per cent of the vote, mainly from rural areas, The drafting of a new constitution faces continued
but incurred heavy losses in urban areas to the Patriotic delays because of weak political will and lack of funding,
Front (PF) (804 000 votes). Despite a large with much focus on the high cost of the referendum
parliamentary majority, the MMD faces strong – the last step in the process. Zambians are unlikely to
opposition in Parliament from the PF which took have their long-awaited constitution before the end of
over key urban district councils (Lusaka and the current government in 2011. However, President
Copperbelt). The increasing popularity of the PF and Mwanawasa in his last term of office may be more
its leader, Michael Sata, as well as the creation of new favourably disposed towards speeding up the process
political parties such as the United Liberal Party with support from donors. Civil society is also planning
(ULP), have contributed to a more active political a remobilisation of the population for 2009. But
debate in Zambia. Zambians may be hesitant about taking to the streets

Zambia
again after the government clampdown on the 2002 supplies; and high poverty levels all contribute to poor
demonstrations. health outcomes. The government’s Basic Health Care
Package covers 10 priority areas: free or cost-sharing
With the strong economic performance experienced health services in some areas including, inter alia, child
since 1999, the incidence of poverty has declined, but health and nutrition; integrated reproductive health;
remains high. According to Zambia’s 2004 census HIV/AIDS, tuberculosis, sexually-transmitted
67 per cent of Zambians live below the national poverty infections,and malaria; human resources; infrastructure;
line, earning less than K111 747 per month. The World and equipment. Some improvements in the supply of
Bank’s 2006 Poverty and Vulnerability Analysis finds essential medicines have been registered: health centre
there is a continuing fall in life expectancy; a stocks improved from 73 per cent in 2002 to 76 per
deteriorating stock of human capital; rising malnutrition cent in 2004. The FNDP implementation will place
and ill-health; and continuing high levels of poverty. emphasis on constructing first level hospitals in the
The World Bank reports that headcount poverty rates 19 districts which do not already have them.
range from 62 per cent in rural areas, 40 per cent of
whom live in deep poverty, to 45 per cent in urban areas Zambia is entering its third decade of double-digit
(28 per cent in deep poverty), compared to an average HIV/AIDS prevalence, officially at 16 per cent, in
of 70 per cent in 1991. There is a higher incidence of 2004. Significant advances have been made by
poverty in the Northern province (75 per cent), Luapula government, co-operating partners, civil society and the
(67 per cent) and North-Western province (61 per private sector in addressing Zambia’s HIV/AIDs
cent) than in Lusaka and Southern provinces (47 per epidemic through the National AIDS Council (NAC).
cent each). However, Zambia has not managed to achieve the
overall decrease in prevalence of HIV hoped for in the 561
As demonstrated in the elections, the government NAC goal for 2005 (reduction from 19 per cent to
is under growing pressure to invest in social welfare and 15 per cent in the number of adults aged 15-49 who
employment creation. Efforts in 2006 through statutory are infected with HIV). The national target set in 2006
instruments 56 and 57 to establish a minimum wage is to reduce infection to below 10 per cent by 2010.
in Zambia at K500 000 per month for the lowest About one million Zambians are infected with HIV and
category of worker are a significant improvement on 200 000 require anti-retroviral treatment; and the
the previous minimum monthly pay - even if domestic epidemic is estimated to have created over a million
workers are excluded – but not sufficient to cover the AIDS orphans. The lack of human resources to support
monthly cost of basic needs in the country. The Basic implementation is a crisis in itself and contributes
Needs Basket for a family of six living in Lusaka in significantly to the lower coverage of services in Zambia.
October 2006 was K1 422 950 per month to cover Local authorities with only limited resources cannot
essential food (K463 450) and non-food items. provide a meaningful range of services.
Performance in the health sector has improved only Access to treatment and testing is improving. As of
marginally since the adoption of the Millennium December 2006, about 90 000 people were receiving
Development Goals. Indeed some basic health indicators ARV drugs, compared to about 40 000 a year earlier.
worsened between 1992 and 2002. The maternal The major obstacle to improving ARV provision is a
mortality rate increased from 649 deaths per 100 000 lack of specialised health staff. The number of Voluntary
live births in 1996 to 729 deaths per 100 000 live Counselling and Testing Centres reached 500 in 2006
births in 2002. Among children under five 47 per cent and testing has increased from 9 per cent to 13 per cent.
are stunted and 28 per cent underweight. The By January 2006, the number of Prevention of Mother
HIV/AIDS pandemic; a shortage of health care workers to Child Transmission (PMTCT) health facilities had
resulting in part from the brain drain; the poor state almost doubled to 265 from 136 a year earlier extending
of health facilities; insufficient drugs and medical coverage to all nine provinces. But there is a worrying

Zambia
trend. Despite broad public awareness – in 2005 94 per struggle to provide schooling for their children.
cent of men and 91 per cent of women knew that Approximately 15 per cent of Zambian children do not
HIV/AIDS could be avoided – condom use has get even the most basic training in literacy through
dropped, as have their distribution and availability in primary education. Accessibility to secondary education
both urban and rural areas. remains very limited with a net enrolment ratio in
grades 10-12 of only 18.6 per cent. The indirect costs
In respect of the MDGs, Zambia is most likely to of education in Lusaka, which include school uniforms,
succeed in the field of education. Marked success has books and supplies, greatly exceed the direct costs that
been recorded for Grades 1-9 since the introduction must be paid to schools in terms of user, Parent-Teacher
of free primary education. Enrolment in Grades 1-7 Association or project fees. Further commitment and
and Grades 8-9 has increased by about 9 per cent expansion of the Ministry of Education’s bursary
annually since 2000. Net enrolment ratios increased programme; school health and nutrition programmes;
from 68.1 per cent in 2000 to 79.4 per cent in 2004, a campaign in support of the girl child, and allowing
thanks mostly to the significant increase in the number pregnant pupils to return to school would all be steps
of community schools. However, the gender goal is in the right direction. The FNDP foresees significant
lagging somewhat with a gross enrolment rate for girls investment in education over the next four years by
of 86.4 per cent in 2004 compared to 93.2 per cent allocating over 17 per cent of the budget in an effort
for boys and completion rates of 65.8 per cent and to address the numerous remaining challenges, especially
78.3 per cent for girls and boys respectively. Despite the quality of education, retention rates, new school
this progress and the introduction of free primary buildings and school books.
education for grades 1-7, the poorest families still
562

Part Three
.
Statistical Annex
.
Statistical Annex
List of Tables
Methodology
Table 1 Basic Indicators, 2006
Table 2 Real GDP Growth Rates, 1998-2008
Table 3 Demand Composition, 2005-08
Table 4 Public Finances, 2005-08
Table 5 Monetary Indicators
Table 6 Current Account, 2005-08
Table 7 Exports, 2005
Table 8 Diversification and Competitiveness
Table 9 International Prices of Exports, 2000-06
Table10 Foreign Direct Investment, 2000-05
Table 11 Aid Flows, 2000-05
Table 12 External Debt Indicators
Table 13 Demographic Indicators 567
Table 14 Poverty and Income Distribution Indicators
Table 15 Access to Services
Table 16 Basic Health Indicators
Table 17 Major Diseases
Table 18 Basic Education Indicators
Table 19 School Enrolment
Table 20 Employment and Remittances
Table 21 Corruption Perception Index
Table 22 Political Troubles
Table 23 Softening of the Regime
Table 24 Hardening of the Regime

Statistical Annex
Methodology on: www.unctad.org/wir). It is the unweighted average

of scores of: GDP per capita, the rate of growth of GDP,
Tables 1 to 6. the share of exports in GDP, telecom infrastructure (the
average number of telephone lines per 1 000 inhabitants,
Where indicated, the figures are reported on a and number of mobile phones per 1 000 inhabitants),
fiscal-year basis. Figures for Egypt, Ethiopia, Kenya, commercial energy use per capita, share of R&D
Mauritius, Tanzania, and Uganda are from July to June expenditures in gross national income, share of tertiary
in the reference year. For South Africa and Botswana, students in the population, country risk, exports of
fiscal year 2005 is from April 2005 to March 2006. natural resources as a percentage of the world total,
imports of parts and components of electronics and
Table 7. Exports, 2005 automobiles as a percentage of the world total, world
market share of exports of services and inward FDI
The table is based on exports disaggregated at 4 digit stock as a percentage of the world total (Source:
level (following the SITC3) UNCTAD, World Investment Report 2006).
Table 8. Diversification and Competitiveness Table 11. Aid Flows, 2000-05
The diversification indicator measures the extent The DAC countries are: Australia, Austria, Belgium,
to which exports are diversified. It is constructed as the Canada, Denmark, Finland, France, Germany, Greece,
inverse of a Herfindahl index, using disaggregated Ireland, Italy, Japan, Luxembourg, the Netherlands,
exports at 4 digits (following the SITC3). A higher New Zealand, Norway, Portugal, Spain, Sweden,
568 index indicates more export diversification. The Switzerland, United Kingdom, United States and the
competitiveness indicator has two aspects: the sectoral Commission of the European Communities.
effect and the global competitivity effect. In order to
compute both competitiveness indicators, we Table 13. Demographic Indicators
decompose the growth of exports into three
components: the growth rate of total international Infant mortality rate: under one-year-old child
trade over the reference period (2001-05) (not reported); deaths per live birth per year.
the contribution to a country’s export growth of the
dynamics of the sectoral markets where the country sells Total fertility rate: average number of children per
its products, assuming that its sectoral market shares woman.
are constant (a weighted average of the differences
between the sectoral export growth rates Mortality under age 5: probability that a newborn
– measured at the world level – and total international infant would die before the age of 5.
trade growth, the weights being the shares of the
corresponding products in the country’s total exports); Table 14. Poverty and Income Distribution
the competitiveness effect, or the balance (export growth Indicators
minus world growth and sector effect), measuring the
contribution of changes in sectoral market shares to a National poverty line: absolute poverty line
country’s export growth. corresponding to the value of consumption necessary
to satisfy minimum subsistence needs. International
Table 10. Foreign Direct Investment, 2000-05 poverty line: absolute poverty line corresponding to a
level of income or consumption of $1 or $2 a day.
The UNCTAD Inward Potential Index is based on
12 economic and structural variables measured by their Gini index: index measuring the intensity of
respective scores on a range of 0-1 (raw data are available inequality in income or consumption expenditure

Statistical Annex
distribution. Perfect equality leads to a Gini index of international agencies, other national authorities and
zero and maximum inequality to a Gini index of 100. commercial banks. Private share of total health
Share of consumption: share of total consumption for expenditure is calculated by defining private expenditure
a decile of the population ranked by level of as private insurance schemes and prepaid medical care
consumption. plans, services delivered or financed by enterprises,
outlays by non-governmental organisations and non-
Table 15. Access to Services profit institutions serving mainly households, out-of-
pocket payments, and other privately funded schemes
The Sanitation coverage is the percentage of the not elsewhere classified, including investment outlays.
population with access to improved sanitation
technologies (connection to a public sewer, connection Table 17. Major Diseases
to septic system, pour-flush latrine, simple pit latrine
or ventilated improved pit latrine). The water supply Healthy life expectancy at birth is the average
coverage is the percentage of the population with access equivalent number of years in full health a newborn
to improved water supply (household connection, infant would live under the hypothesis that, during its
public standpipe, borehole, protected dug well and life, the conditions of mortality and ill-health remain
protected spring or rainwater collection). the same as observed at its birth.
Table 16. Basic Health Indicators People living with HIV/AIDS is estimated whether
or not they have developed symptoms of AIDS.
Life expectancy at birth is the average number of
years a newborn infant would live under the hypothesis HIV/AIDS adult prevalence is the estimate of the 569
that, during its life, the conditions of mortality remain adult population (15-49) living with HIV/AIDS. Malaria
the same as observed at its birth. Life expectancy at birth notified cases are cases of malaria reported from the
with AIDS is the estimated average number of years a different local case detection and reporting systems.
newborn infant would live under the hypothesis that, These figures should be considered with caution because
during its life, the conditions of mortality remain the of the diversity of sources and probable underestimation.
same as observed at its birth in particular the The Measles incidence is the number of new cases of
characteristics of AIDS epidemic. Life expectancy at measles reported during the reference year.
birth without AIDS is the estimated number of years
a newborn infant would live under the hypothesis of MCV: Measles Containing Vaccine.
absence of AIDS during its life. Under nourishment
prevalence is the proportion of the population that is DTP3: Third dose of Diphtheria and Tetanus
suffering insufficient food intake to meet dietary energy toxoids and Pertussis vaccine.
requirements continuously. Food availability is the
available nutritious food for human consumption Table 19. School Enrolment
expressed in kilo-calories per person per day (note that
the recommended daily caloric intake for an active Gross enrolment ratio: population enrolled in a
healthy life is 2 100 calories). Public share of total specific level of education, regardless of age, expressed
health expenditure is calculated by defining public as a percentage of the official school-age pupils enrolled
health expenditure as current and capital outlays of in that level. Net enrolment ratio: official school-age
government, compulsory social security schemes, extra- population enrolled in a specific level of education
budgetary funds dedicated to health services delivery expressed as a percentage of the total population enrolled
or financing and grants and loans provided by in that level.

Statistical Annex
Table 20. Employment and Remittances Table 22. Political Troubles
Participation rate: measure of the proportion of a • Strikes

country’s working-age population that engages actively 0 = non-occurrence,
in the labour market, either by working or looking for 1 = 1 strike or number of strikers lower than 1 000
work. It provides an indication of the relative size of (inclusive),
the supply of labour available to engage in the 2 = 2 strikes or number of strikers between 1 000 and
production of goods and services. 5 000 (inclusive),
3 = 3 strikes or number of strikers higher than 5 000.
Total unemployment: proportion of the labour
force that does not have a job and is actively looking • Unrest and violence (number of dead and injured)
for work. Dead
0 = none,
Inactivity rate: percentage of the population that 1 = between 1 and 10 (non inclusive),
is neither working nor seeking work (that is, not in the 2 = between 10 and 100 (non inclusive),
labour force). 3 = higher than 100.
Table 21. Corruption Perception Index, Injured

2000-06 0 = none,
1 = between 1 and 50 (non inclusive) or if the number
The Corruption Perception Index (CPI) is a of dead is between 1 and 10,
570 composite indicator based on surveys of business people 2 = between 50 and 500 (non inclusive) or if the
and assessments of country analysts. A background paper number of dead is between 10 and 100,
presenting the methodology and validity of the CPI is 3 = higher than 500 or if the number of dead exceeds
available on the Transparency International website: 100.
http://www.transparency.org/policy_research/surveys_in
dices/cpi/2006/methodology • Demonstrations
0 = non-occurrence,
Table 22 to 24. Political Indicators 1 = 1 demonstration or number of strikers lower than
5 000 (non inclusive),
The political indicators were built on information 2 = 2 demonstrations or number of strikers between
taken from the weekly newspaper Marchés Tropicaux 5 000 and 10 000 (non inclusive),
et Méditerranéens according to a methodology first 3 = 3 demonstrations or number of strikers higher than
proposed by Dessus, Lafay and Morrisson1. The 10 000.
qualitative information derived from the newspaper
were either computed as 0-1 variables with 0 being • Coup d’état and attempted coups d’état
the non-occurrence of the event and 1 its occurrence
or as 4-value indicators (with 0: non-occurrence, Table 23. Softening of the Political Regime
1: occurrence but weak intensity, 2: medium intensity
and 3: strong intensity). From these indicators, three • Lifting of state of emergency
main political indexes were constructed: an index of
conflicts, a measure of the softening of the political • Releases of political prisoners
regime and one of its hardening.
• Measures in favour of human rights
1. Dessus, S., D. Lafay and C. Morrisson (1994), “A Politico-economic Model for Stabilisation in Africa”, Journal of African Economies.

Statistical Annex
• Improvement of political governance (fight against • Violence perpetuated by the police (number of
corruption…) dead and injured)
• Relinquishment of political persecution, Dead

rehabilitation, return from exile 0 = none,
1 = between 1 and 10 (non inclusive),
• Political opening (measures in favour of democracy) 2 = between 10 and 100 (non inclusive),
1 = Discussion with the opposition, 3 = higher or equal to 100.
2 = Entry of the opposition to power,
3 = Opening of a regime to elections. Injured
0 = none,
• Lifting of bans on strikes or demonstration 1 = between 1 and 50 (non inclusive),
• Lifting of bans on press or public debates 3 = higher or equal to 500.
Table 24. Hardening of the Political Regime • Prosecutions, executions
• State of emergency • Bans on strikes and demonstrations
• Arrests, incarcerations • Bans on press or public debates

0 = non-occurrence,
1 = between 1 and 10 (non inclusive), • Closing of schools 571
3 = higher than 100. • Obligatory demonstrations
• Additional resources for the police, propaganda A principal component analysis was undertaken in
or censorship order to determine a relevant weight for each qualitative
variable within the synthetic indexes.
• Toughening of the political environment
(expulsions, dismissals, curfew, and dissolution
of political parties)

Statistical Annex
Weights in “Political troubles”

Weights
Strike 0.286
Dead 0.950
Injured 0.958
Demonstration 0.543
Coups d'état and attempts 0.059
Weights in “Softening of the political regime”

Weights
Lifting of state of emergency 0.282

Release of political prisoners 0.709
Measures in favour of human rights 0.373
Improvement of political governance 0.089
Relinquishment of political persecution 0.502
Political opening 0.373
Lifting of bans on strikes 0.323
Lifting of bans on public debates 0.522
Weights in “Hardening of the political regime”

572 Weights
State of emergency 0.631

Violence perpetuated by the police: Dead 0.261
Injured 0.423
Arrests 0.402
Additional resources for the police 0.603
Toughening of the political environment 0.253
Prosecutions, executions 0.583
Bans on strikes 0.383
Bans on demonstrations 0.292
Closing of schools 0.092

Tables
574
Statistical Annex
Table 1 - Basic Indicators, 2006

Population Land area Population Density GDP based on PPP valuation*** GDP per Capita Annual real GDP growth
(thousands) (thousands of km2) (pop/km2) ($ million) (PPP valuation, $) (average over 1998-2006)
Algeria 33 354 2 382 14 238 821 7 160 4, 2

Angola 16 400 1 247 13 56 378 3 438 9,0
Benin 8 703 115 76 10 089 1 159 4,4
Botswana** 1 760 582 3 20 431 11 611 7,2

Burkina Faso 13 634 274 50 17 916 1 314 5,9
Burundi 7 834 28 281 5 935 758 2,2
Cameroon 16 601 476 35 47 286 2 848 3,9
Cape Verde 519 4 129 3 356 6 473 6,6
Central African Republic 4 093 623 7 4 890 1 195 0,9
Chad 10 032 1 284 8 15 558 1 551 9,2
Comoros 819 2 366 1 195 1 459 2,2
Congo 4 117 342 12 5 739 1 394 4,0
Congo, Dem. Rep. 59 320 2 345 25 50 764 856 1,5
Côte d’Ivoire 18 454 322 57 25 714 1 393 0,7
Djibouti 807 23 35 1 739 2 155 2,4
Egypt* 75 437 1 001 75 339 493 4 500 4,9
Equatorial Guinea 515 28 18 20 406 39 623 22,9
Eritrea 4 560 118 39 4 075 894 1,2
Ethiopia* 79 289 1 104 72 62 952 794 4,5
Gabon 1 406 268 5 10 783 7 668 0,4
Gambia 1 556 11 138 3 230 2 076 4,7
Ghana 22 556 239 95 48 400 2 146 4,9
Guinea 9 603 246 39 20 217 2 105 3,5
Guinea Bissau 1 634 36 45 1 222 748 - 1,2
Kenya 35 106 593 59 64 428 1 835 3,3
Lesotho 1 791 30 59 5 198 2 903 1,6
Liberia 3 356 111 30 .. .. ..
Libya 5 968 1 760 3 71 676 12 009 3,4
Madagascar 19 105 587 33 17 570 920 3,5
Malawi 13 166 118 111 8 592 653 2,5
Mali 13 918 1 240 11 13 838 994 5,3
© AfDB/OECD 2007
Table 1 - Basic Indicators, 2006 (cont.)
Population Land area Population Density GDP based on PPP valuation*** GDP per Capita Annual real GDP growth
(thousands) (thousands of km2) (pop/km2) ($ million) (PPP valuation, $) (average over 1998-2006)
Mauritania 3 158 1 026 3 9 270 2 936 5,0

Mauritius 1 256 2 616 18 234 14 519 4,2
© AfDB/OECD 2007
Morocco 31 943 711 45 185 404 5 804 4,6
Mozambique 20 158 802 25 39 447 1 957 8,1
Namibia 2 052 824 2 17 377 8 467 4,3
Niger 14 426 1 267 11 10 819 750 4,0
Nigeria 134 375 924 145 143 839 1 070 4,5
Rwanda 9 230 26 350 15 430 1 672 6,0
São Tomé and Principe 160 1 166 270 1 684 3,7
Senegal 11 936 197 61 20 713 1 735 4,6
Seychelles 81 0,455 179 979 12 034 0,6
Sierra Leone 5 679 72 79 5 378 947 8,0
Somalia 8 496 638 13 .. .. ..
South Africa 47 594 1 221 39 611 911 12 857 3,5
Sudan 36 992 2 506 15 98 227 2 655 6,5
Swaziland 1 029 17 59 5 935 5 765 2,4
Tanzania 39 025 945 41 23 176 594 5,6
Togo 6 306 57 111 9 850 1 562 1,8
Tunisia 10 210 164 62 90 301 8 844 4,9
Uganda* 29 857 241 124 46 633 1 562 5,6
Zambia 11 861 753 16 13 842 1 167 3,7
Zimbabwe 13 085 391 33 29 724 2 272 - 4,8
Africa 924 320 30 323 30 2 594 649 2 844 4,3
Note: * Fiscal year July (n-1)/June (n) ** Fiscal year April (n)/ March (n+1) *** Purchasing Power Parity.
Sources: Population: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects, The 2004 Revision. http://dx.doi.org/10.1787/673625150313
Land area: African Development Indicators, World Bank.

GDP: Various domestic authorities; IMF World Economic Outlook and authors' estimates and forecasts.
Statistical Annex
575
576
Statistical Annex
Table 2 - Real GDP Growth Rates, 1998-2008

1998 1999 2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Algeria 5.1 3.2 2.2 2.1 4.7 6.9 5.2 5.3 2.9 5.1 5.0
Angola 6.8 3.2 3.0 3.1 14.5 3.3 11.2 20.6 14.9 26.9 17.3
Benin 4.0 5.3 4.9 6.2 4.4 3.9 3.1 2.9 4.5 4.5 4.8
Botswana** 14.5 7.1 7.3 9.1 1.6 9.5 3.4 8.4 4.2 4.3 4.1
Burkina Faso 7.3 6.2 1.9 7.1 5.4 8.0 4.6 7.1 5.5 5.4 5.1

Burundi 4.8 -1.0 -0.9 2.1 4.4 -1.2 4.8 0.9 6.1 6.6 7.1
Cameroon 4.9 4.1 4.2 4.5 4.0 4.0 3.7 2.2 3.5 4.0 4.0
Cape Verde 8.4 11.9 7.3 7.1 4.3 4.7 4.4 5.8 5.8 6.5 7.0
Central Afr. Rep. 3.9 3.6 1.8 0.3 -0.6 -7.6 1.3 2.2 3.5 4.0 4.3
Chad 6.9 -0.5 -0.5 11.5 8.5 14.3 33.7 8.6 0.2 2.5 1.0
Comoros 1.2 1.9 1.4 3.3 4.1 2.5 -0.2 4.2 1.2 3.0 4.5
Congo 3.7 -2.7 7.6 3.8 4.6 0.8 3.6 7.7 6.8 1.9 6.6
Congo. Dem. Rep. -1.7 -4.3 -6.9 -2.1 3.5 5.8 6.6 6.5 6.5 6.2 6.0
Côte d’Ivoire 5.4 1.6 -2.3 0.1 -1.6 -1.7 1.6 1.8 1.4 2.4 2.6
Djibouti 0.1 3.0 0.5 2.0 2.6 3.2 3.0 3.2 4.2 5.0 5.6
Egypt* 7.6 6.1 5.4 3.5 3.2 3.2 4.1 4.5 6.8 6.6 6.7
Equatorial Guinea 17.7 23.2 13.1 78.3 21.3 14.1 32.4 6.0 0.4 9.4 17.8
Eritrea 1.8 0.0 -13.1 9.2 0.7 3.9 2.0 4.8 1.5 2.0 3.3
Ethiopia* -4.0 6.0 5.9 7.7 1.2 -3.5 12.3 8.7 5.9 6.3 6.9
Gabon 3.5 -8.9 -1.9 2.1 -0.3 2.5 1.4 3.0 2.1 2.0 2.5
Gambia 6.5 6.4 5.5 5.8 -3.2 6.9 5.1 5.0 4.5 5.0 5.0
Ghana 4.7 4.4 3.7 4.2 4.5 5.2 5.8 5.8 6.1 5.9 6.0
Guinea 4.8 4.7 1.9 4.0 4.2 1.2 2.7 3.3 5.0 5.0 5.0
Guinea Bissau -28.2 7.6 7.5 0.2 -7.1 -0.6 2.2 3.2 4.6 5.2 5.8
Kenya 3.4 2.1 0.5 4.5 0.6 3.0 4.9 5.8 5.0 5.3 5.1
Lesotho -4.5 0.2 2.6 1.8 2.9 2.7 4.0 2.9 1.6 1.4 2.0
Liberia … … … … … … … … … … …
Libya -0.4 0.3 1.1 4.5 3.3 9.1 4.6 3.5 5.0 4.6 4.4
Madagascar 3.9 4.7 4.7 6.0 -12.7 9.8 5.3 4.6 4.8 5.2 5.5
Malawi 1.1 3.5 0.8 -4.1 2.1 3.9 5.1 2.2 8.4 4.8 5.1
Mali 8.1 5.7 -3.3 12.0 4.2 7.6 2.3 6.1 5.0 4.8 4.6
© AfDB/OECD 2007
Table 2 - Real GDP Growth Rates, 1998-2008 (cont.)
1998 1999 2000 2001 2002 2003 2004 2005 2006(e) 2007(p) 2008(p)
Mauritania 2.8 6.7 1.8 2.9 1.1 5.6 5.2 5.4 13.9 6.3 2.6
Mauritius 6.1 2.6 9.0 2.6 1.9 4.3 5.7 1.2 3.9 5.0 5.4
Morocco 7.7 0.5 1.8 7.6 3.3 6.1 5.2 2.4 7.3 3.4 4.8
© AfDB/OECD 2007
Mozambique 12.6 7.5 1.9 13.1 8.2 7.9 7.5 6.2 7.9 7.3 6.8
Namibia 3.3 3.4 3.5 2.4 6.7 3.5 6.6 4.2 4.8 4.8 4.9
Niger 12.6 1.1 -2.6 7.4 5.3 3.3 -1.0 7.0 3.1 4.0 3.9
Nigeria 0.3 1.5 5.4 3.1 1.5 10.7 6.1 6.5 5.3 7.0 5.3
Rwanda 8.9 7.6 6.0 6.7 9.4 0.9 4.0 6.0 4.3 5.7 4.9
São Tomé and Principe 2.5 2.5 3.0 4.0 4.1 4.0 3.8 3.8 5.5 5.5 6.5
Senegal 5.9 6.3 3.2 4.6 0.7 6.7 5.6 5.5 2.9 5.6 5.1
Seychelles 2.5 1.9 4.3 -2.2 1.3 -6.3 -2.0 1.2 4.5 1.5 2.0
Sierra Leone -0.8 -8.1 3.8 18.2 27.5 9.3 7.4 7.2 7.4 6.5 6.5
Somalia … … … … … … … … … … …
South Africa 0.5 2.4 4.2 2.7 3.7 3.1 4.8 5.1 5.0 4.5 4.4
Sudan 4.3 3.1 8.4 6.2 6.4 4.9 5.2 7.9 12.1 11.3 9.3
Swaziland 3.3 3.5 2.0 1.7 2.8 2.4 2.1 1.9 1.8 1.6 1.5
Tanzania 3.7 3.5 5.1 6.2 7.2 5.7 6.7 6.8 5.7 6.8 6.6
Togo -2.3 2.4 1.0 0.2 4.1 5.2 2.3 1.2 1.8 2.9 3.2
Tunisia 4.8 6.1 4.7 4.9 1.7 5.6 6.0 4.2 5.8 5.8 5.5
Uganda* 3.6 8.2 5.4 4.9 6.4 4.4 5.7 6.7 5.4 6.0 5.9
Zambia -1.9 2.2 3.6 4.9 3.3 5.1 5.4 5.1 5.9 5.8 6.0
Zimbabwe 0.1 -3.6 -7.3 -2.7 -4.4 -10.4 -3.8 -6.5 -5.1 -4.7 -3.3
Africa 3.4 3.1 3.4 4.2 3.6 4.6 5.4 5.2 5.5 5.9 5.7
Note: * Fiscal year July (n-1)/June (n) ** Fiscal year April (n)/ March (n+1).

Sources: Various domestic authorities; IMF World Economic Outlook and authors' estimates and forecasts.
http://dx.doi.org/10.1787/368601060524
Statistical Annex
577
578
Statistical Annex
Table 3 - Demand Composition and Growth Rate, 2005-08

2005 2006(e) 2007(p) 2008(p)
Final Gross Capital

Consumption Formation External Sector
Private Public Private Public** Exports Imports Total Gross Exports Imports Total Gross Exports Imports Total Gross Exports Imports
Final Capital Final Capital Final Capital

Con- Forma- Con- Forma- Con- Forma-
sump- tion - sump- tion - sump- tion -
tion Total tion Total tion Total
Percentage of GDP Real Percentage Growth Real Percentage Growth Real Percentage Growth
Algeria 33.6 11.8 20.4 9.6 48.0 23.5 3.4 6.0 1.6 5.7 3.9 8.7 4.1 4.5 4.0 9.3 3.7 5.9
Angola 43.9 24.1 2.8 4.7 72.6 48.0 21.7 51.9 9.6 26.9 18.1 12.8 30.1 14.8 21.1 13.7 7.0 16.1
Benin 76.8 12.0 10.2 8.0 21.6 28.5 3.2 13.5 5.0 5.2 4.6 7.6 6.0 7.0 4.9 8.4 6.8 8.1
Botswana** 27.8 22.8 25.6 9.1 49.8 35.1 3.1 15.8 1.6 8.7 2.8 8.3 3.4 4.0 2.7 7.3 3.3 3.6
Burkina Faso 72.5 21.5 9.5 11.1 9.7 24.3 5.3 6.1 9.7 8.4 4.5 6.8 12.1 5.5 5.4 6.4 8.4 6.8
Cameroon 71.7 9.9 14.5 4.9 20.4 21.4 3.0 7.5 3.4 4.4 4.0 6.9 2.2 4.5 4.1 6.4 2.0 4.7
Chad 24.7 20.8 17.9 8.7 54.4 26.6 1.6 7.3 -1.0 7.0 4.3 8.3 -0.2 6.6 3.7 7.0 -3.0 5.4
Congo 27.4 13.2 17.0 5.4 87.1 50.2 3.5 19.1 5.8 7.4 9.6 10.6 -4.9 6.1 6.5 5.0 5.1 3.8
Congo. Dem. Rep. 85.3 8.3 10.5 3.7 31.6 39.3 9.2 8.2 13.8 25.1 3.8 29.5 7.5 4.0 3.4 26.3 7.8 4.3
Côte d’Ivoire 70.3 13.9 6.6 2.7 50.6 44.1 2.4 -4.3 2.1 3.3 2.7 2.1 1.8 2.5 2.7 6.4 2.2 3.5
Egypt* 71.6 12.7 13.4 4.5 30.3 32.6 9.3 15.8 13.1 17.2 5.8 17.0 5.0 11.0 7.2 14.2 2.5 11.8
Ethiopia* 84.2 13.8 8.3 12.1 15.8 34.3 5.5 17.5 2.1 10.4 7.2 3.0 5.0 6.9 7.3 5.9 5.2 7.3
Gabon 31.4 11.5 17.4 5.8 66.2 32.3 -1.5 10.2 2.0 3.2 2.1 5.0 -2.7 1.2 1.2 3.8 1.3 0.8
Ghana 81.3 15.3 17.0 12.0 36.2 61.8 7.7 13.4 5.9 15.4 4.6 7.7 4.4 4.5 6.8 8.7 4.6 9.5
Kenya 76.8 17.1 12.2 4.6 26.7 37.4 4.8 15.9 3.8 5.6 3.9 12.5 4.5 2.2 4.4 8.9 5.0 2.5
Madagascar 82.4 9.0 16.7 9.3 28.2 45.5 3.3 14.8 5.6 8.1 4.3 8.5 3.7 4.4 5.0 7.4 4.1 4.8
© AfDB/OECD 2007
Table 3 - Demand Composition and Growth Rate, 2005-08 (cont.)
2005 2006(e) 2007(p) 2008(p)
Final Gross Capital

Consumption Formation External Sector
© AfDB/OECD 2007
Private Public Private Public** Exports Imports Total Gross Exports Imports Total Gross Exports Imports Total Gross Exports Imports
Final Capital Final Capital Final Capital
Con- Forma- Con- Forma- Con- Forma-
sump- tion - sump- tion - sump- tion -
tion Total tion Total tion Total
Percentage of GDP Real Percentage Growth Real Percentage Growth Real Percentage Growth
Malawi 106.1 16.8 3.7 7.3 26.7 60.6 6.6 -0.2 -6.5 -7.3 1.2 24.6 5.6 1.1 3.6 11.1 4.7 4.7
Mali 65.6 17.1 14.2 7.0 24.8 28.6 2.1 10.0 9.0 6.4 3.4 5.4 6.2 3.3 4.3 5.7 5.0 5.2
Mauritius 69.6 14.8 15.3 6.3 59.9 65.9 2.0 12.5 5.4 5.4 4.3 7.0 5.5 5.1 3.7 7.3 3.1 1.4
Morocco 56.6 19.2 27.3 2.9 31.6 37.8 9.3 5.9 7.3 8.7 2.5 4.5 4.9 2.7 3.4 7.0 6.5 4.1
Mozambique 69.1 12.9 17.4 12.5 30.9 42.9 2.3 27.5 6.7 6.7 3.3 15.0 6.7 3.9 5.3 11.7 6.2 7.1
Namibia 51.7 29.4 18.0 7.6 35.1 41.8 4.2 7.3 7.5 7.4 0.0 5.5 10.0 1.8 3.1 8.7 6.2 5.1
Niger 77.7 15.0 13.5 5.3 20.9 32.5 3.5 7.2 2.5 6.7 4.2 6.1 2.4 5.3 3.9 6.1 2.6 4.8
Nigeria 36.7 21.2 11.5 9.4 55.2 34.0 6.2 22.9 -4.0 15.2 6.2 19.8 3.1 8.1 5.2 12.0 2.3 6.9
Rwanda 86.8 12.6 8.8 10.1 11.4 29.8 5.2 4.8 6.6 8.5 4.8 17.9 5.5 7.2 4.6 7.9 6.7 4.5
Senegal 77.8 13.9 15.6 8.1 26.1 41.5 7.6 6.1 -9.4 6.8 3.3 5.1 9.8 2.3 5.4 5.1 2.4 4.0
South Africa 63.5 20.2 12.9 4.9 27.1 28.6 4.9 10.6 2.2 5.3 4.2 9.9 2.3 4.9 4.5 9.9 2.1 6.1
Tanzania 78.0 7.3 13.1 9.1 22.9 30.4 3.9 8.8 5.7 4.0 6.3 10.4 3.0 8.9 5.5 12.0 3.1 7.7
Tunisia 63.8 15.5 16.0 7.4 48.0 50.6 3.0 1.7 1.5 1.0 5.7 7.3 5.4 5.0 6.3 9.0 4.2 6.7
Uganda* 78.5 14.4 16.6 4.6 13.1 27.2 6.5 20.1 1.8 13.6 5.1 11.8 4.3 7.1 5.3 10.7 3.1 7.1
Zambia 66.2 13.7 16.0 7.0 33.9 36.7 7.8 7.3 6.2 10.5 6.4 12.3 4.6 9.5 4.4 10.2 6.3 5.6

http://dx.doi.org/10.1787/325822570786
Statistical Annex
579
580
Statistical Annex
Table 4 - Public Finances, 2005-08 (percentage of GDP)

2005 2006(e) 2007(p) 2008(p)
Total Total Overall Total Total Overall Total Total Overall Total Total Overall
revenue expenditure balance revenue expenditure balance revenue expenditure balance revenue expenditure balance
and and net and and net and and net and and net
grants lending grants lending grants lending grants lending
Algeria 41.0 29.1 11.9 41.7 28.7 13.0 40.1 29.4 10.7 39.6 29.8 9.7

Angola 38.0 30.1 7.9 35.4 30.0 5.4 34.8 28.5 6.3 32.7 28.9 3.8
Benin 18.4 21.3 -2.9 19.0 21.8 -2.7 19.3 22.0 -2.7 19.5 22.4 -2.8
Botswana** 36.8 35.7 1.2 36.9 37.1 -0.2 37.0 37.1 -0.1 36.1 36.5 -0.3
Burkina Faso 16.8 21.7 -4.9 19.8 23.1 -3.3 16.9 22.6 -5.7 17.2 23.1 -6.0
Burundi 30.5 36.8 -6.3 41.4 41.8 -0.4 33.2 41.7 -8.6 33.3 41.0 -7.7
Cameroon 18.1 14.6 3.6 18.8 14.8 4.0 18.1 15.2 2.9 17.9 15.3 2.6
Cape Verde 31.2 36.3 -5.1 34.1 41.2 -7.1 33.6 37.9 -4.3 34.3 38.4 -4.0
Central African Republic 12.2 16.7 -4.6 10.8 12.1 -1.4 11.0 12.2 -1.1 11.3 12.4 -1.1
Chad 12.3 13.0 -0.8 11.7 13.3 -1.7 11.5 14.0 -2.5 11.1 14.7 -3.6
Comoros 19.9 19.9 0.1 20.6 21.8 -1.2 23.2 23.8 -0.6 24.8 24.6 0.2
Congo 39.6 23.7 15.9 40.1 21.2 18.9 38.0 25.7 12.3 37.6 25.4 12.1
Congo. Dem. Rep. 16.8 19.5 -2.7 22.0 23.2 -1.2 21.1 22.5 -1.4 20.8 22.8 -1.9
Côte d’Ivoire 18.2 19.9 -1.7 17.9 19.9 -2.0 17.7 19.8 -2.1 17.6 20.0 -2.3
Djibouti 37.1 36.8 0.2 33.7 34.9 -1.2 29.9 31.2 -1.3 29.3 35.3 -6.0
Egypt* 20.6 30.0 -9.4 21.1 30.4 -9.3 20.8 29.8 -9.0 21.2 29.3 -8.0
Equatorial Guinea 40.5 18.1 22.3 44.3 18.5 25.8 48.7 16.3 32.4 49.4 15.4 34.0
Eritrea 37.0 56.6 -19.7 34.7 52.6 -17.9 37.7 54.0 -16.3 40.2 54.0 -13.8
Ethiopia* 20.5 25.2 -4.7 18.9 26.3 -7.4 20.8 26.6 -5.8 20.5 25.8 -5.6
Gabon 31.4 21.9 9.4 31.6 20.9 10.7 30.7 23.2 7.5 30.4 23.2 7.2
Gambia 21.4 30.1 -8.6 23.0 27.7 -4.8 28.3 28.5 -0.2 27.4 27.3 0.1
Ghana 27.9 30.8 -3.0 28.6 32.8 -4.3 29.2 32.8 -3.6 29.0 32.6 -3.6
Guinea 13.6 14.4 -0.8 15.0 14.0 1.0 15.3 13.8 1.4 15.0 14.1 1.0
Guinea Bissau 26.0 38.1 -12.1 36.1 46.9 -10.8 29.8 37.9 -8.1 30.1 36.9 -6.8
Kenya* 22.6 22.5 0.1 23.0 26.5 -3.5 22.5 23.7 -1.2 22.2 23.6 -1.4
Lesotho 49.5 45.2 4.2 58.3 55.5 2.7 50.7 52.4 -1.7 48.5 50.0 -1.6
Liberia ... ... ... ... ... ... ... ... ... ... ... ...
Libya 73.9 41.6 32.2 73.9 31.7 42.1 75.2 30.0 45.1 75.0 30.7 44.3
Madagascar 16.7 21.3 -4.7 17.0 21.7 -4.7 16.1 21.0 -4.8 15.1 20.2 -5.1
© AfDB/OECD 2007
Table 4 - Public Finances, 2005-08 (percentage of GDP) (cont.)
2005 2006(e) 2007(p) 2008(p)
Total Total Overall Total Total Overall Total Total Overall Total Total Overall
revenue expenditure balance revenue expenditure balance revenue expenditure balance revenue expenditure balance
and and net and and net and and net and and net
grants lending grants lending grants lending grants lending
© AfDB/OECD 2007
Malawi 37.5 43.1 -5.6 44.1 47.1 -3.0 41.6 43.1 -1.5 39.7 46.4 -6.7
Mali 21.6 24.8 -3.2 22.7 24.4 -1.7 22.6 24.4 -1.8 22.4 24.9 -2.5
Mauritania 26.4 33.5 -7.0 33.4 40.4 -7.0 26.6 32.4 -5.8 26.4 32.0 -5.6
Mauritius* 19.9 24.9 -5.0 20.1 25.4 -5.3 20.4 25.1 -4.7 20.5 24.9 -4.4
Morocco 23.9 29.9 -6.0 23.4 29.0 -5.6 23.2 28.9 -5.7 22.8 28.5 -5.6
Mozambique 20.0 22.2 -2.3 23.0 25.1 -2.0 21.0 26.7 -5.7 20.5 26.8 -6.3
Namibia 30.0 31.1 -1.1 36.4 34.2 2.2 30.4 32.7 -2.2 29.8 32.1 -2.3
Niger 17.1 18.9 -1.8 15.3 19.3 -4.0 14.7 19.1 -4.4 15.1 18.8 -3.7
Nigeria 43.3 32.6 10.7 42.1 32.3 9.8 38.9 33.8 5.1 37.3 35.2 2.1
Rwanda 29.2 28.5 0.7 28.2 27.5 0.7 27.6 28.8 -1.1 27.9 28.9 -1.0
São Tomé and Principe 129.9 70.6 59.3 104.1 77.9 26.2 308.7 73.2 235.5 58.1 68.5 -10.4
Senegal 21.1 24.3 -3.2 21.8 27.2 -5.5 21.8 26.1 -4.3 21.8 26.2 -4.4
Seychelles 53.5 52.4 1.1 51.1 53.8 -2.7 48.1 52.4 -4.4 48.0 52.7 -4.7
Sierra Leone 21.9 24.6 -2.7 21.1 21.6 -0.5 20.1 22.6 -2.5 20.0 22.5 -2.5
Somalia ... ... ... ... ... ... ... ... ... ... ... ...
South Africa** 26.3 26.7 -0.3 26.3 26.7 -0.4 26.2 26.7 -0.4 26.2 26.7 -0.5
Sudan 22.0 23.8 -1.8 24.4 24.2 0.2 30.5 27.5 3.0 31.9 29.0 2.9
Swaziland 32.7 36.8 -4.1 30.7 37.0 -6.3 29.4 37.1 -7.7 29.2 37.7 -8.5
Tanzania* 21.3 25.9 -4.6 20.4 26.5 -6.0 22.0 26.4 -4.5 22.2 26.2 -4.1
Togo 15.4 16.2 -0.8 15.6 18.8 -3.2 16.4 18.0 -1.6 17.0 19.0 -2.0
Tunisia 25.0 27.6 -2.6 24.2 27.1 -3.0 24.0 27.0 -3.0 23.9 27.3 -3.3
Uganda* 20.9 21.6 -0.7 19.7 21.8 -2.1 18.6 21.7 -3.2 17.9 21.7 -3.8
Zambia 23.0 25.6 -2.6 21.1 23.6 -2.5 21.2 23.2 -2.0 22.1 23.9 -1.8
Zimbabwe 44.2 50.3 -6.1 38.0 41.2 -3.1 37.4 39.2 -1.8 37.8 43.0 -5.3
Africa 30.6 28.2 2.4 31.2 28.0 3.2 31.0 28.2 2.7 30.7 28.5 2.1

http://dx.doi.org/10.1787/786335886722
Statistical Annex
581
582
Statistical Annex
Table 5 - Monetary Indicators

Inflation Exchange Rate Broad Money Reserves
(%) (LCU / $) (LCU billion) excluding gold
2006 ($ million)
2006
2005 2006(e) 2007(p) 2008(p) 2004 2005 2006 Level % of GDP Growth Stock at Eq. Months
2005/06 year-end of imports

Algeria 1.9 2.9 3.3 3.2 72.1 73.3 72.7 4 233.6 45.2 4.8 67 586 36.9
Angola 23.0 10.1 8.5 9.3 83.5 87.2 80.4 481.6 12.7 23.1 5 229 5.7
Benin 5.4 2.4 1.8 2.3 528.3 527.5 524.0 635.6 25.5 0.2 769 9.0
Botswana** 7.8 11.6 5.8 5.5 4.7 5.1 5.8 21.2 35.6 44.6 7 093 22.9
Burkina Faso 6.4 2.8 2.7 0.3 528.3 527.5 524.0 588.4 18.2 5.9 495 5.3
Burundi 13.5 5.0 3.3 4.0 1 100.9 1 081.6 1 031.8 254.5 26.6 5.0 86 3.3
Cameroon 2.0 3.0 1.8 2.1 528.3 527.5 524.0 1 544.5 15.9 1.8 1 271 4.8
Cape Verde 0.4 3.6 0.2 0.3 88.8 88.7 88.4 76.4 77.8 8.4 209 5.1
Central African Republic 2.9 5.6 3.1 2.3 528.3 527.5 524.0 122.4 15.9 -4.7 133 9.3
Chad 7.9 6.3 3.0 3.0 528.3 527.5 524.0 288.8 8.1 16.5 293 3.6
Comoros 3.2 3.8 3.0 3.0 396.2 395.6 393.0 32.5 20.6 -2.1 90 11.2
Congo 2.5 4.0 2.8 2.3 528.3 527.5 524.0 653.1 16.9 42.5 1 198 6.1
Congo, Dem. Rep. 21.4 22.0 7.4 7.1 395.9 473.9 439.7 288.1 7.4 6.6 ... ...
Côte d’Ivoire 3.9 2.4 2.6 2.9 528.3 527.5 524.0 2 063.4 22.7 -0.9 1 516 3.6
Djibouti 3.5 3.0 3.0 3.0 177.7 177.7 177.7 101.2 74.8 3.6 103 3.7
Egypt* 11.4 4.1 6.4 6.1 6.2 5.8 5.7 553.9 93.1 5.9 22 487 8.9
Equatorial Guinea 5.0 5.2 4.1 3.7 528.3 527.5 524.0 265.5 5.5 -4.9 2 530 15.3
Eritrea 12.4 10.9 10.5 10.0 13.8 15.4 15.4 22.2 123.8 1.5 24 0.6
Ethiopia* 6.8 10.5 6.0 5.9 8.6 8.7 8.7 51.0 44.3 8.5 1 043 3.0
Gabon -0.2 1.9 1.8 2.2 528.3 527.5 524.0 903.6 18.2 7.5 868 6.8
Gambia 3.2 2.0 3.7 3.2 30.0 28.6 28.1 6.7 47.0 9.6 100 3.9
Ghana 15.1 10.9 7.2 6.9 9 004.6 9 072.5 9 174.5 29 616.0 26.4 5.6 1 916 4.5
Guinea 31.1 25.0 12.4 8.1 2 225.0 3 644.3 5 139.6 2 264.5 14.7 13.2 99 1.4
Guinea Bissau 3.4 1.9 2.2 2.0 528.3 527.5 524.0 53.6 31.2 1.6 81 7.6
Kenya 10.3 14.5 3.6 3.8 79.2 75.6 72.2 592.5 34.6 8.3 2 235 3.6
Lesotho 4.0 4.5 4.8 4.5 6.5 6.4 6.8 2.8 27.9 6.8 591 5.3
Liberia 6.9 8.0 7.5 7.5 54.9 57.1 58.4 6.8 ... 6.3 46 ...
Libya 2.5 3.0 3.5 3.5 1.3 1.3 1.3 17.1 25.9 4.1 47 149 43.8
Madagascar 18.4 11.4 9.4 7.7 1 868.9 2 003.0 2 147.1 2 188.9 18.6 7.7 490 3.7
© AfDB/OECD 2007
Table 5 - Monetary Indicators (cont.)
Inflation Exchange Rate Broad Money Reserves
(%) (LCU / $) (LCU billion) excluding gold
2006 ($ million)
2006
2005 2006(e) 2007(p) 2008(p) 2004 2005 2006 Level % of GDP Growth Stock at Eq. Months
© AfDB/OECD 2007
2005/06 year-end of imports
Malawi 15.7 13.4 8.2 7.2 108.9 118.4 136.0 57.9 19.4 7.2 116 1.4
Mali 6.4 2.1 2.1 2.0 528.3 527.5 524.0 804.8 25.7 -4.4 879 8.7
Mauritania 12.1 6.4 8.7 8.0 265.5 265.5 270.6 ... ... ... ... ...
Mauritius 4.9 8.9 5.0 5.9 27.5 29.5 31.7 298.2 153.2 10.5 1 365 5.0
Morocco 0.9 3.3 2.3 1.9 8.9 8.9 8.8 499.9 99.3 5.3 18 574 9.4
Mozambique 6.4 12.7 8.1 5.7 22 581.3 22 428.3 25.4 47.1 0.0 4.8 1 114 4.2
Namibia 2.3 5.0 4.9 5.0 6.5 6.4 6.8 19.9 46.5 14.5 444 2.1
Niger 7.8 0.8 1.9 1.9 528.3 527.5 524.0 264.9 14.1 6.7 289 4.3
Nigeria 17.9 8.6 6.9 9.6 132.9 131.3 127.4 3 037.0 19.9 15.4 37 003 11.7
Rwanda 9.2 9.3 5.1 5.0 577.4 557.8 551.7 258.3 19.9 2.0 420 11.0
São Tomé and Principe 16.3 19.8 17.2 11.3 9 902.3 10 558.0 11 050.2 715.2 77.2 21.1 29 6.0
Senegal 1.7 2.0 2.0 2.0 528.3 527.5 524.0 1 570.9 32.4 1.4 1 295 5.1
Seychelles 1.0 -0.4 1.8 2.2 5.5 5.5 5.5 4.5 120.6 1.5 76 1.6
Sierra Leone 12.0 9.5 8.3 8.0 2 701.3 2 889.6 2 960.7 759.9 17.6 4.9 174 5.1
Somalia … … … … … … … ... ... ... ... ...
South Africa 3.9 4.9 5.0 4.5 6.5 6.4 6.8 1 037.4 61.8 10.7 23 787 4.5
Sudan 8.5 7.0 5.0 4.0 257.9 243.6 217.3 1 657.5 19.6 20.3 2 445 3.9
Swaziland 4.8 5.0 5.9 5.0 6.5 6.4 6.8 3.6 20.9 3.8 354 2.0
Tanzania 4.3 7.1 6.5 5.8 1 089.3 1 128.9 1 254.1 4 287.9 26.6 9.0 2 176 10.1
Togo 6.8 2.7 2.9 3.1 528.3 527.5 524.0 335.1 28.1 6.7 309 3.6
Tunisia 2.0 4.5 2.7 2.3 1.2 1.3 1.3 23.5 58.3 5.1 5 120 4.7
Uganda* 8.0 6.6 5.6 5.3 1 810.3 1 780.7 1 835.1 3 323.7 19.3 5.8 1 496 9.0
Zambia 18.3 8.4 8.6 7.8 4 778.9 4 463.5 3 590.7 6 280.5 16.0 10.4 558 2.1
Zimbabwe 237.8 1216.0 4278.8 8462.1 5 068.7 22 363.6 133 912.6 9 233.9 0.0 54.3 … ...
Africa 8.8 9.1 9.2 9.5 … … … …

Source: Various domestic authorities; IMF World Economic Outlook & International Financial Statistics and authors' estimates and forecasts. http://dx.doi.org/10.1787/034242223177
Statistical Annex
583
584
Statistical Annex
Table 6 - Current Account, 2005-20

Trade balance Current account balance Current account balance
($ million) ($ million) (as % of GDP)
2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008
Algeria 26 400 34 156 31 756 31 678 21 200 28 864 24 753 24 353 21 24 20 19

Angola 14 740 19 586 25 025 25 727 4 194 6 837 7 762 1 424 13 14 13 2
Benin -293 -334 -328 -363 -194 -226 -234 -274 -4 -4 -4 -5

Botswana* 1 088 900 909 990 809 1 031 1 387 1 527 8 9 11 12
Burkina Faso -525 -593 -586 -623 -585 -759 -777 -841 -10 -12 -11 -12
Burundi -182 -245 -280 -295 -84 -167 -170 -161 -11 -17 -16 -14
Cameroon 248 593 465 401 -257 64 -201 -162 -2 0 -1 -1
Cape Verde -349 -399 -453 -504 -45 -72 -113 -135 -5 -7 -10 -11
Central African Republic -23 -31 -38 -40 -40 -47 -53 -59 -3 -3 -3 -3
Chad 2 295 2 721 2 471 2 217 290 559 -544 -257 5 8 -7 -3
Comoros -77 -86 -93 -102 -17 -18 -24 -28 -5 -5 -6 -6
Congo 3 216 4 642 4 019 4 314 498 1 641 760 892 8 19 9 10
Congo, Dem. Rep. -198 -468 -412 -251 -345 -404 -350 -304 -5 -5 -4 -3
Côte d’Ivoire 2 368 2 022 2 289 2 338 -50 -331 -275 -363 0 -2 -2 -2
Djibouti -263 -295 -402 -481 -29 -31 -140 -221 -4 -4 -17 -25
Egypt* -10 359 -11 986 -14 696 -19 222 2 911 2 271 978 -3 644 3 2 1 -3
Equatorial Guinea 5 219 6 853 8 787 10 545 -898 -455 1 003 2 194 -13 -5 9 17
Eritrea -472 -482 -525 -570 -7 -24 -39 -46 -1 -2 -5 -5
Ethiopia* -2 786 -3 234 -3 583 -3 872 -983 -1 488 -1 842 -2 083 -9 -12 -13 -13
Gabon 4 091 5 177 4 327 4 317 1 448 2 478 1 498 1 651 17 24 15 17
Gambia -126 -137 -141 -148 -60 -55 -33 -45 -13 -11 -6 -8
Ghana -2 510 -2 532 -2 726 -3 167 -757 -1 145 -1 253 -1 628 -7 -12 -11 -13
Guinea 76 88 77 22 -161 -144 -160 -229 -5 -4 -4 -6
Guinea Bissau -18 -18 -20 -17 -21 -16 -26 -24 -7 -5 -8 -7
Kenya -2 168 -2 976 -2 814 -2 783 -495 -811 -1 071 -808 -3 -3 -3 -2
Lesotho -635 -807 -844 -873 -23 -53 -134 -161 -2 -3 -8 -10
Liberia … … … … … … … … … … … …
Libya 18 783 27 231 32 272 33 052 15 581 23 484 28 810 30 409 40 48 51 51
Madagascar -481 -717 -745 -809 -507 -906 -936 -1 014 -10 -17 -16 -16
© AfDB/OECD 2007
Table 6 - Current Account, 2005-20 (cont.)
Trade balance Current account balance Current account balance
($ million) ($ million) (as % of GDP)
2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008
Malawi -380 -494 -348 -387 -324 -421 -315 -226 -16 -19 -19 -13
© AfDB/OECD 2007
Mali -123 92 201 118 -119 2 15 -139 -2 0 0 -2
Mauritania -783 216 755 757 -934 -193 65 -5 -50 -7 2 0
Mauritius -797 -1 095 -1 171 -1 482 -324 -496 -494 -728 -5 -7 -7 -10
Morocco -8 086 -10 937 -11 219 -11 892 945 97 1 024 1 893 2 0 1 2
Mozambique -721 -575 -759 -984 -1 084 -760 -1 323 -1 581 -16 -8 -14 -16
Namibia -573 -524 -392 -341 349 712 755 708 6 10 10 9
Niger -259 -212 -181 -168 -252 -205 -190 -290 -8 -6 -5 -7
Nigeria 27 300 30 439 29 668 29 386 11 900 11 001 13 489 14 366 12 8 9 9
Rwanda -229 -292 -312 -328 -75 -117 -154 -119 -4 -4 -5 -4
São Tomé and Principe -38 -56 -60 -64 -21 -46 -48 -51 -30 -63 -61 -59
Senegal -1 322 -1 676 -1 648 -1 804 -726 -1 124 -1 068 -1 210 -8 -13 -11 -12
Seychelles -261 -198 -199 -192 -100 -23 -21 -2 -14 -3 -3 0
Sierra Leone -127 -127 -130 -125 -86 -94 -101 -105 -7 -7 -7 -6
Somalia … … … … … … … … … … … …
South Africa -1 887 -3 255 -4 038 -6 718 -10 118 -11 628 -12 383 -14 914 -4 -5 -5 -5
Sudan -1 087 1 293 4 062 4 438 -2 919 -2 229 -1 289 -1 520 -11 -6 -3 -3
Swaziland -95 -76 -80 -69 -35 -42 -72 -70 -1 -2 -3 -2
Tanzania -1 324 -1 068 -1 245 -1 518 -955 -526 -499 -746 -8 -5 -5 -6
Togo -300 -293 -289 -316 -313 -319 -310 -328 -15 -14 -12 -12
Tunisia -1 963 -2 234 -2 626 -3 415 -360 -359 -676 -1 286 -1 -1 -2 -3
Uganda* -885 -1 003 -1 086 -1 236 -198 -343 -458 -640 -2 -4 -5 -6
Zambia 32 759 574 -181 -695 -348 -1 037 -1 589 -10 -3 -8 -11
Zimbabwe -375 63 -83 -1 -500 42 -145 -31 -11 1 -1 0
Africa 62 774 87 381 93 105 84 958 34 427 52 655 53 342 41 361 4 5 4 3
Note: * Fiscal year July (n-1)/June (n).

Source:

Various domestic authorities; IMF World Economic Outlook and authors' estimates and forecasts.
http://dx.doi.org/10.1787/686310430456
Statistical Annex
585
586
Statistical Annex
Table 7 - Exports, 2005

Three main exports, with their share in total exports* No. of products
accounting
for more than
75 per cent
Product I Product II Product III of exports
Algeria Crude petroleum (67.2%) Natural gas, liquefied (13.2%) Natural gas, gaseous (5.6%) 2

Angola Crude petroleum (95.8%) 1
Benin Cotton,not carded,combed (55.3%) Edible nuts fresh,dried (16.5%) Oth.non-ferr.metal waste (6.4%) 3
Botswana Diamonds.excl.industrial (88.2%) Nickel mattes,sintrs.etc (8.1%) 1
Burkina Faso Cotton,not carded,combed (84.5%) 1
Burundi Coffee, not roasted (88%) 1
Cameroon Crude petroleum (48.8%) Wood,non-conifer, sawn (14.1%) Bananas, fresh or dried (8.7%) 4
Cape Verde Fish,frozen ex.fillets (61.4%) Trousers,breeches,etc. (6.3%) Gas turbines, nes (4%) 4
Central Afr. Rep. Diamonds.excl.industrial (40%) Wood,non-conif,rough,unt (33.8%) Cotton,not carded,combed (8.9%) 3
Chad Crude petroleum (94.9%) 1
Comoros Spices,ex.pepper,pimento (57.9%) Essential oils (14.2%) Fish,frozen ex.fillets (12.7%) 3
Congo Crude petroleum (88.7%) 1
Congo, Dem. Rep. Diamonds.excl.industrial (42.6%) Oth.non-ferr.ore,concntr (17.2%) Crude petroleum (16.7%) 3
Côte d’Ivoire Cocoa beans (38.2%) Crude petroleum (12%) Cocoa paste (7.7%) 7
Djibouti Bovine animals, live (20%) Trousers,breeches,etc. (7.2%) Othr.ferrous waste,scrap (7%) 17
Egypt Natural gas, liquefied (15.8%) Crude petroleum. (10.3%) Portland cement, etc. (4.7%) 46
Equatorial Guinea Crude petroleum (92.6%) 1
Eritrea Natural gums,resins,etc (17.3%) Sesame (sesamum) seeds (8.7%) Molluscs (7.6%) 14
Ethiopia Coffee, not roasted (47.8%) Sesame (sesamum) seeds (20.2%) 5
Gabon Crude petroleum (76.7%) Wood,non-conif,rough,unt (10.6%) Manganese ores,concentrs (6.9%) 1
Gambia Edible nuts fresh,dried (43.5%) Mech.shovel etc.s-propld (9.9%) Groundnuts (peanuts) (7.7%) 6
Ghana Cocoa beans (46.1%) Manganese ores,concentrs (7.2%) Wood,non-conifer, sawn (6.7%) 8
Guinea Aluminium ore,concentrat (50.9%) Alumina(aluminium oxide) (17.2%) Copper ores,concentrates (7.8%) 3
Guinea Bissau Edible nuts fresh,dried (93.5%) 1
Kenya Tea (16.8%) Cut flowers and foliage (14.2%) Oth.frsh,chll.vegetables (8.1%) 27
Lesotho Jersys,pullovrs,etc.knit (29.2%) Trousers,breeches,etc. (22%) Diamonds.excl.industrial (15%) 4
Liberia Ships,boats,othr.vessels (73.9%) Spec.purpose vessels etc (8.9%) Natural rubber latex (8%) 2
Libya Crude petroleum (95.3%) 1
Madagascar Jersys,pullovrs,etc.knit (19.4%) Crustaceans, frozen (13.2%) Spices,ex.pepper,pimento (9%) 14
© AfDB/OECD 2007
Table 7 - Exports, 2005 (cont.)
Three main exports. with their share in total exports* No. of products
accounting
for more than
75 per cent
Product I Product II Product III of exports
© AfDB/OECD 2007
Malawi Tobacco,stemmed,stripped (59.2%) Tea (7.6%) Sugars, beet or cane, raw (5.3%) 4
Mali Cotton,not carded,combed (81.8%) 1
Mauritania Iron ore,concntr.not agg (51.3%) Molluscs (24%) Fish, frozen ex.fillets (13.5%) 2
Mauritius Sugars,beet or cane, raw (21.4%) T-shirts,othr.vests knit (18.7%) Shirts (7.6%) 10
Morocco Inorganic acid,oxide etc (7.2%) Insultd wire,etc.condctr. (6.8%) Natural calc.phosphates (5.6%) 32
Mozambique Alum.,alum.alloy,unwrght (73.4%) Crustaceans, frozen (4.7%) 2
Namibia Diamonds.excl.industrial (39.1%) Radio-active chemicals (11.4%) Zinc, zinc alloy, unwrght. (9.7%) 5
Niger Radio-active chemicals (79.5%) 1
Nigeria Crude petroleum (92.2%) 1
Rwanda Coffee, not roasted (51.9%) Ore etc.molybdn.niob.etc (19%) Tin ores, concentrates (9.8%) 3
São Tomé and P. Cocoa beans (55.2%) Vessels,oth.float.struct (10.9%) Drawing, measuring instrument (7.6%) 4
Senegal Inorganic acid,oxide etc (38.8%) Molluscs (9.8%) Fish,fresh,chilled,whole (6.4%) 8
Seychelles Fish,prepard,presrvd,nes (44.1%) Fish,frozen ex.fillets (27.5%) Ships,boats,othr.vessels (11%) 3
Sierra Leone Diamonds.excl.industrial (62.7%) Cocoa beans (7.2%) Cultivating machnery.etc (4.1%) 4
Somalia Sheep and goats, live (34.6%) Bovine animals, live (19.7%) Fish,frozen ex.fillets (7.8%) 5
South Africa Platinum (12.5%) Oth.coal,not agglomeratd (8%) Gold,nonmontry excl ores (7.9%) 39
Sudan Crude petroleum (89.2%) 1
Swaziland Sugars,beet or cane, raw (14.1%) Food preparations, nes (9.3%) Flavours,industrial use (9%) 20
Tanzania Gold,nonmontry excl ores (10.9%) Fish fillets,frsh,chilld (9.7%) Copper ores,concentrates (8.6%) 15
Togo Cocoa beans (22.4%) Natural calc.phosphates (19.8%) Cotton,not carded,combed (18.6%) 8
Tunisia Crude petroleum (9%) Trousers,breeches,etc. (8.7%) Insultd wire,etc.condctr (6.7%) 36
Uganda Coffee, not roasted (31.1%) Fish fillets,frsh,chilled (24.3%) Tobacco,stemmed,stripped (7.5%) 5
Zambia Copper;anodes;alloys (55.8%) Cobalt,cadmium,etc.unwrt (7%) Cotton,not carded,combed (5.7%) 5
Zimbabwe Tobacco,stemmed,stripped (13.9%) Nickel,nckl.alloy,unwrgt (12.6%) Nickel ores,concentrates (12.3%) 16
Africa Crude petroleum (49.2%) [18%] Diamonds.excl.industrial (3.7%) [12.6%] Nickel ores,concentrates (2.8%) [17.5%] 26
Note: * Products are reported when accounting for more than 4 per cent of total exports.
** Figures in [ ] represent the share of Africa in the World export for each product.
http://dx.doi.org/10.1787/413343675072

Sources: PC-TAS 2001-2005 International Trade Center UNCTAD/WTO - UN Statistics Division.
Statistical Annex
587
588
Statistical Annex
Table 8 - Diversification and Competitiveness

Diversification index Annual export growth Competitiveness Indicator
(%) 1999-2003 (%)
2001 2002 2003 2004 2005 2001-2005 Sectoral Global
effect competitiveness effect
Algeria 5.3 2.8 2.4 1.9 2.1 27.6 -1.4 14.9

Angola 1.3 1.2 1.1 1.0 1.1 51.0 13.5 23.4

Benin 1.8 3.3 3.4 2.7 2.9 -5.2 -8.3 -11.0
Botswana 7.5 1.3 1.3 1.4 1.3 369.7 9.7 488.1
Burkina Faso 4.4 6.5 2.2 2.1 1.4 9.0 -7.4 2.2
Burundi 1.9 3.2 2.2 2.2 1.3 35.2 6.9 14.2
Cameroon 4.5 4.5 4.4 3.6 3.6 10.7 4.0 -7.4
Cape Verde 8.6 5.8 11.4 10.5 2.6 8.1 -4.9 -1.1
Central African Republic 2.4 2.0 3.4 2.8 3.5 -7.7 -1.0 -20.8
Chad 1.5 1.8 2.1 1.2 1.1 477.6 -10.4 473.8
Comoros 1.3 2.4 1.3 1.4 2.6 -8.7 -14.5 -8.4
Congo 1.5 1.4 1.5 1.4 1.3 35.7 11.5 10.1
Congo. Dem. Rep. 2.4 1.8 2.8 3.8 4.1 3.5 5.8 -16.4
Côte d’Ivoire 6.8 5.5 4.3 6.0 5.6 8.6 1.1 -6.6
Djibouti 49.0 29.8 17.4 9.2 14.8 -19.5 -3.1 -30.4
Egypt 26.3 26.0 29.3 25.3 22.6 24.7 -2.6 13.1
Equatorial Guinea 1.3 1.2 1.2 1.1 1.2 61.4 10.4 36.9
Eritrea 14.4 11.7 18.0 9.1 15.4 11.0 -4.9 1.8
Ethiopia 5.3 4.3 4.3 4.0 3.6 27.7 -5.6 19.2
Gabon 1.7 1.7 1.6 1.7 1.7 13.9 11.7 -12.0
Gambia 5.8 7.2 9.3 7.3 4.6 0.1 -7.5 -6.5
Ghana 8.2 6.1 4.9 4.7 4.3 9.9 0.0 -4.2
Guinea 3.4 3.9 4.1 3.7 3.3 6.7 -0.7 -6.7
Guinea Bissau 1.6 2.8 2.1 2.2 1.1 6.0 10.6 -18.7
Kenya 11.3 12.0 14.9 16.2 15.2 9.7 -6.7 2.2
Lesotho 5.2 5.1 5.4 5.1 5.6 25.5 -10.2 26.1
Liberia 2.1 2.5 2.1 1.4 1.8 2.6 3.5 -15.1
Libya 1.4 1.2 1.2 1.1 1.1 29.8 11.2 4.4
Madagascar 9.2 8.4 7.6 10.7 12.2 0.1 -8.7 -5.4
© AfDB/OECD 2007
Table 8 - Diversification and Competitiveness (cont.)
Diversification index Annual export growth Competitiveness Indicator
(%) 1999-2003 (%)
2001 2002 2003 2004 2005 2001-2005 Sectoral Global
effect competitiveness effect
© AfDB/OECD 2007
Malawi 2.9 2.9 3.3 3.7 2.8 5.7 -11.9 3.5
Mali 3.2 2.2 1.4 1.2 1.5 1.7 -4.7 -7.7
Mauritania 3.8 3.8 4.1 3.5 2.9 13.8 13.3 -13.6
Mauritius 12.6 12.2 11.8 10.3 9.9 1.4 -5.6 -7.2
Morocco 35.3 36.4 36.2 36.2 34.7 12.4 -4.3 2.5
Mozambique 2.9 2.7 2.3 1.9 1.8 28.9 -4.1 18.9
Namibia 7.1 7.2 10.3 7.0 5.2 56.5 -0.8 60.2
Niger 4.6 3.8 1.9 3.0 1.6 -4.7 4.6 -23.4
Nigeria 1.3 1.2 1.3 1.2 1.2 27.3 14.8 -1.7
Rwanda 2.6 2.8 2.4 1.8 3.1 4.9 41.3 -50.6
São Tomé and Principe 7.0 3.6 2.1 4.2 3.0 -3.7 -1.8 -16.0
Senegal 12.8 13.0 13.4 11.7 5.7 1.4 -2.8 -9.9
Seychelles 2.6 2.8 2.4 3.1 3.5 17.4 -5.3 8.5
Sierra Leone 6.8 7.6 4.8 2.6 2.5 35.2 1.3 19.8
Somalia 11.6 6.3 6.7 6.2 5.6 3.1 -4.0 -7.0
South Africa 33.2 31.2 27.7 25.3 23.1 11.2 2.1 -5.0
Sudan 1.7 1.8 1.6 1.5 1.3 45.1 11.5 19.5
Swaziland 8.8 13.9 15.7 15.0 18.9 28.4 -5.9 20.2
Tanzania 19.0 21.0 24.1 22.0 18.7 21.1 -2.5 9.5
Togo 9.3 9.0 12.8 6.7 7.6 1.7 -6.0 -6.4
Tunisia 28.5 29.9 31.0 31.3 30.6 11.7 -4.0 1.5
Uganda 6.2 6.5 6.9 6.2 5.8 13.0 -3.0 1.9
Zambia 4.2 4.3 5.0 3.6 3.1 32.7 7.3 11.2
Zimbabwe 9.8 7.8 10.7 12.2 13.9 0.1 -2.5 -11.6
Africa 8.1 8.0 6.3 5.1 4.1 21.4 4.5 2.8

Sources: PC-TAS 2001-2005 International Trade Center UNCTAD/WTO - UN Statistics Division.
http://dx.doi.org/10.1787/306021685644
Statistical Annex
589
590
Statistical Annex
Table 9 - International Prices of Exports, 2000-06

Unit 2000 2001 2002 2003 2004 2005 2006
Aluminum ($/mt) 1 549.14 1 444.00 1 349.91 1 431.29 1 715.54 1 898.31 2 569.90

Banana (US) ($/mt) 424.00 583.30 528.58 374.79 524.58 602.84 677.24
Coal (US) ($/mt) 33.06 44.86 40.02 ... ... ... ...
Cocoa (cents/kg) 90.58 106.90 177.79 175.09 154.98 153.81 159.19

Coffee (Arabica) (cents/kg) 191.97 137.30 135.66 141.54 177.40 253.22 252.21
Coffee (Robusta) (cents/kg) 91.30 60.70 66.18 81.45 79.30 111.45 148.93
Copper ($/mt) 1 813.47 1 578.00 1 559.48 1 779.14 2 865.88 3 678.88 6 722.13
Cotton (c/kg) 130.22 105.80 101.92 139.91 136.57 121.70 126.66
Fish Meal ($/mt) 429.48 486.70 605.92 610.71 648.58 730.96 1 166.33
Gold ($/toz) 279.03 271.00 309.97 363.51 409.21 444.84 604.34
Groundnut oil ($/mt) 713.67 680.30 687.08 1 243.17 1 161.00 1 060.44 970.23
Iron ore (c/dmtu) 28.79 30.03 29.31 31.95 37.90 65.00 77.35
Lead (c/kg) 45.39 47.60 45.27 51.50 88.65 97.64 128.97
© AfDB/OECD 2007
Table 9 - International Prices of Exports, 2000-06 (cont.)
Unit 2000 2001 2002 2003 2004 2005 2006
Logs Cameroon ($/CM) 275.43 266.10 ... ... ... ... ...
Maize ($/mt) 88.53 89.60 99.27 105.37 111.80 98.67 121.85
© AfDB/OECD 2007
Oil (crude) ($/bbl) 28.23 24.35 24.97 28.85 38.30 54.43 65.39
Palm oil ($/mt) 310.25 285.70 390.25 443.25 471.33 422.08 478.35
Phosphate (rock) ($/mt) 43.75 41.80 40.38 38.00 40.98 42.00 44.21
Rubber (Malaysia) (cents/kg) 69.12 60.00 77.06 105.60 ... ... ...
Sugar (EEC) (cents/kg) 57.71 52.86 54.92 59.72 66.97 66.54 64.56
Sugar (free market) (c/kg) 18.04 19.04 15.18 15.63 15.80 21.79 32.59
Sugar (US) (cents/kg) 44.45 47.04 46.14 47.37 45.47 46.93 48.76
Tea (Avg. 3 auctions) (c/kg) 187.62 159.80 150.60 151.66 168.56 164.71 187.21
Tea (Mombasa) (c/kg) 202.86 151.70 149.21 154.36 155.42 147.75 195.23
Tobacco ($/mt) 2 976.21 3 011.00 2 744.50 2 646.10 2 740.20 2 790.00 2 740.00

Source: World Bank, Global Commodity Price Prospects, March 2007.
http://dx.doi.org/10.1787/418061547318
Statistical Annex
591
592
Statistical Annex
Table 10 - Foreign Direct Investment, 1999-04 ($ million)

FDI inflows FDI outflows FDI inflows / GFCF
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 2003 2004 2005 2004
Algeria 438 1 113 1 065 634 882 1 081 18 9 100 14 258 23 4.0 4.2 4.9 65
Angola 879 2 146 1 672 3 505 1 449 -24 20 15 29 24 35 29a 198.3 62.2 -1 80
Benin 60 44 14 45 64 21a 4 2 1 0 -1 0 6.4 8.1 2.5 136
Botswana 57 31 403 418 391 346 2 380 43 206 - 39 57 23.7 19.2 17.8 70

Burkina Faso 23 6 15 29 14 19a 0 1 2 2 -9 -3a 3.4 1.3 1.6 129
Burundi 12 0 0 0 -2a -1a 0 0 0 0 ... … 0.0 -2.6 -0.8 …
Cameroon 0 0 0 0 0 18a - 12 28 7 36 ... … 0.0 0.0 0.7 109
Cape Verde 32 9 12 14 20 19 1 1 0 ... ... … 6.4 6.9 5.9 …
Central African Republic 1 5 6 3 - 13 6a 0 0 1 0 .. … 2.0 -7.5 3.4 …
Chad 115 460 924 713 478 705a 0 0 0 0 ... … 49.7 45.9 64.5 …
Comoros 0 1 0 1 0 1a ... ... ... ... ... … 3.1 0.0 3 …
Congo 166 77 137 323 668 402a 4 6 6 2 ... … 33.8 56.7 26.4 99
Congo, Dem. Rep. 23 82 117 158 15a 1 344a -2 1 -2 ... ... … 22.3 1.3 106.9 140
Côte d’Ivoire 235 273 213 165 283 192a 8 -5 -4 23a -26a -4a 12.8 15.5 10.1 126
Djibouti 3 3 4 14 39 23 0 0 0 0 0 0 18.3 47.1 26.4 …
Egypt 1 235 510 647 237 2 157 5 376 51 12 28 21 159 92 2.0 16.8 33.6 81
Equatorial Guinea 108 945 323 1 431 1 664 1 860a -4 4 0 0 ... … 258.2 285.3 304.2 …
Eritrea 28 12 20 22a -8a 11a 0 0 0 0 0 0 13.1 -3.9 5.4 …
Ethiopia 135 349 255 465 545 205a 0 0 0 0 0 0 34.2 32.2 11.6 125
Gabon - 43 - 89 30 206 323 300a 25 4 - 32 - 57 5a -28a 14.2 17.6 15.6 103
Gambia 44 35 43 -1a 2a 24a 5 5 5 7a 10a 13a -1.6 2.2 23.1 108
Ghana 166 89 59 137 139 156 0 0 0 0a 0a 0a 7.8 5.6 6 110
Guinea 10 2 30 83 98 102a … 5 7 ... ... … 23.1 24.1 23.9 133
Guinea Bissau 1 0 4 4 2 10a ... 0 1 1 -8 -4a 13.5 4.8 27.5 …
Kenya 111 5 28 82 46 21 0 0 7 2 4 10 3.5 1.8 0.8 …
Lesotho 31 28 27 42 53 47 ... ... 0 0 0 … 9.6 9.9 8.4 …
Liberia 21 8 3 372a 207a 194a 780 - 313 386 80a 92a 186a 967.9 340.8 304.9 …
Libya 141 - 133 145 142 -354 261 98 175 - 136 63 - 271 138 5.2 -12.2 8.6 41
Madagascar 83 93 8 95 53 48a ... ... ... ... ... … 10.8 4.8 4.2 135
© AfDB/OECD 2007
Table 10 - Foreign Direct Investment, 1999-04 ($ million) (cont.)
FDI inflows FDI outflows FDI inflows / GFCF
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 2003 2004 2005 2004
Malawi 26 34 6 4a -1a 3a ... 5 ... ... ... … 2.1 -0.4 1.6 132
Mali 82 122 244 132 101 159a 4 17 2 1 1 2a 17.2 10.5 15.8 122
© AfDB/OECD 2007
Mauritania 40 92 118 214a 5a 115a 1 ... ... -1a ... … 81.9 1.4 33.3 122
Mauritius 266 - 28 32 63 14 24 13 3 9 -6 32 48 4.9 1.0 1.8 …
Morocco 471 2 875 534 2 429 1 070 2 933 60 100 54 20 32 174 23.1 8.7 22.1 89
Mozambique 139 255 347 337 245 108 0 0 0 0 0 … 44.9 20.0 8.4 97
Namibia 188 365 182 149 226 349 3 - 13 -5 - 10 - 22 -12 11.4 15.7 23.2 88
Niger 8 23 5 11 20 12a -1 -4 -2 0 7 3a 4.0 4.1 2.3 131
Nigeria 1 310 1 277 2 040 2 171 2 127 3 403 169 94 172 167 261 200 32.4 20.5 31.2 96
Rwanda 8 4 3 5 8 8 0 0 0 0 0 0 1.5 2.4 2.3 124
São Tomé and Principe 4 3 3 1a -2a 7a 0 0 0 0 0 0 4.8 -7.6 32.4 …
Senegal 63 32 78 52 77 54a 1 -7 34 3 13 30a 3.6 4.3 2.9 111
Seychelles 24 65 48 58 37 82 8 9 9 8 8 8 92.3 54.7 114.9 …
Sierra Leone 39 10 2 3 26 27 ... ... ... ... ... … 2.3 15.4 15.2 139
Somalia 0 0 0 -1a 21a 24a 0 0 0 0 0 0 … … … …
South Africa 888 6 789 757 734 799 6 379 271 -3 180 - 399 565 1 352 68 2.8 2.3 15.8 72
Sudan 392 574 713 1 349 1 511 2 305 0 0 0 0 0 0 41.8 35.8 52.2 123
Swaziland 91 51 90 - 61 60 -14 17 - 18 0 - 11 1 21 -25.7 13.8 -3 …
Tanzania 282 467 430 527 470 473 0 0 0 0 0 0 24.4 19.9 19.1 112
Togo 42 64 53 34 59 49a 0 -7 2 - 6 - 13 -10a 9.9 13.6 10.7 130
Tunisia 779 486 821 584 639 782 0 6 7 5 4 13 10.0 10.1 12.1 69
Uganda 181 151 185 202 222 258 - 28 ... ... ... ... … 14.5 14.7 16.3 115
Zambia 122 72 82 172 239 259 ... ... ... ... ... … 16.0 18.0 18.6 134
Zimbabwe 23 4 26 4 9 103 8 4 3 0 0 1 0.4 1.2 13.5 141
Africa 9 627 20 027 12 994 18 513 17 199 30 672 1 573 -2 557 427 1 159 1 885 1 054 15.8 11.8 19.1 …
* The potential index is based on 12 economic and policy variables. See note on methodology for further details.
Note: a UNCTAD estimates.
http://dx.doi.org/10.1787/600636668030

Source: UNCTAD, World Investment Report 2006.
Statistical Annex
593
594
Statistical Annex
Table 11 - Aid Flows, 2000-05 ($ million)

ODA net total, All donors ODA net total, DAC countries ODA net total, Multilateral
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Algeria 201 224 328 234 314 371 66 63 123 169 235 290 64 107 63 68 80 71
Angola 302 283 414 493 1 145 442 189 179 286 372 1016 258 107 104 129 122 131 183
Benin 238 272 216 295 385 349 191 144 140 196 210 207 49 126 73 100 175 142
Botswana 31 29 37 28 47 71 24 24 37 27 32 52 8 3 2 2 17 19

Burkina Faso 335 390 471 507 614 660 228 221 230 266 331 339 103 155 196 238 282 319
Burundi 93 137 172 227 362 365 41 55 85 121 186 181 52 82 87 106 176 184
Cameroon 379 486 656 899 772 414 213 357 436 756 572 336 169 131 220 143 199 77
Cape Verde 94 77 92 143 140 161 70 49 43 90 91 104 25 29 50 53 49 56
Central African Republic 75 66 60 51 110 95 53 48 40 32 55 62 22 18 20 19 55 33
Chad 130 185 228 247 321 380 53 73 67 96 163 167 76 112 159 151 155 213
Comoros 19 27 32 24 25 25 11 10 11 11 14 17 8 16 17 13 12 8
Congo 33 74 57 69 115 1 449 23 30 41 34 48 1 360 10 45 15 35 68 89
Congo, Dem. Rep. 177 243 1 175 5 416 1 824 1 828 103 143 351 5 009 1 165 1 034 74 100 824 406 659 793
Côte d’Ivoire 351 169 1 068 254 160 119 250 159 831 281 197 151 100 10 236 -28 -37 -32
Djibouti 71 58 78 79 64 79 42 28 37 37 39 54 20 30 39 39 27 23
Egypt 1 328 1 256 1 237 987 1456 926 1 139 1 090 1 124 775 1 176 659 135 104 83 84 260 238
Equatorial Guinea 21 13 20 21 30 39 18 13 14 18 23 30 3 1 7 3 6 9
Eritrea 176 281 230 316 263 355 112 151 121 185 177 226 55 127 96 131 90 132
Ethiopia 686 1 104 1 297 1 594 1 819 1 937 379 367 489 1 033 1 025 1 202 292 709 774 528 757 706
Gabon 12 9 72 -11 40 54 -12 -8 49 -41 24 30 23 17 22 30 16 24
Gambia 49 53 60 63 65 58 15 13 18 20 12 15 32 38 40 40 54 43
Ghana 600 641 649 957 1 362 1 120 376 387 406 479 897 603 221 251 238 465 456 503
Guinea 153 281 249 240 280 182 93 122 126 135 178 128 57 160 117 105 102 54
Guinea Bissau 80 59 59 145 77 79 42 30 26 98 29 39 39 29 34 48 48 40
Kenya 510 462 391 521 664 768 293 270 288 320 471 495 212 186 93 199 194 260
Lesotho 37 56 76 79 106 69 22 29 30 33 35 39 16 28 48 47 72 30
Liberia 67 38 52 107 213 236 24 16 27 70 163 149 44 23 25 36 50 87
Libya* 0 0 0 0 0 24 0 0 0 0 0 17 0 0 0 0 0 4
Madagascar 322 374 369 539 1 248 929 139 146 126 225 685 500 184 229 245 315 564 429
© AfDB/OECD 2007
Table 11 - Aid Flows, 2000-05 ($ million) (cont.)
ODA net total, All donors ODA net total, DAC countries ODA net total, Multilateral
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Malawi 446 404 376 517 501 575 269 196 225 314 308 322 171 197 142 201 192 251
Mali 359 351 466 543 568 691 300 209 257 272 328 378 61 130 155 272 241 313
© AfDB/OECD 2007
Mauritania 211 267 344 238 181 190 82 81 147 136 83 125 129 187 199 105 97 66
Mauritius 20 21 24 -15 38 32 12 8 4 -18 15 22 7 6 20 3 25 10
Morocco 419 518 486 539 707 652 293 342 217 336 394 289 130 142 135 157 244 309
Mozambique 876 931 2 201 1 037 1 246 1 286 624 720 1661 697 731 771 253 207 537 337 511 513
Namibia 152 109 134 146 173 123 97 77 85 110 124 99 54 31 47 33 34 23
Niger 208 256 297 457 541 515 106 114 114 245 306 256 103 141 180 212 235 259
Nigeria 174 168 294 308 578 6 437 84 108 215 200 315 5 966 89 62 81 109 264 471
Rwanda 321 299 354 335 488 576 175 149 199 213 217 292 146 150 155 121 271 284
São Tomé and Principe 35 38 26 38 33 32 18 22 19 25 22 18 17 16 7 12 12 13
Senegal 423 413 445 447 1 055 689 288 224 243 314 755 440 139 189 191 136 299 249
Seychelles 18 13 8 9 10 19 3 8 4 5 6 8 8 5 4 3 3 11
Sierra Leone 181 343 353 304 360 343 116 167 225 208 163 130 65 174 125 92 196 213
Somalia 101 148 191 174 200 236 56 88 102 114 140 146 44 45 44 60 60 90
South Africa 487 428 505 641 628 700 354 313 375 477 459 486 132 113 128 163 168 213
Sudan 220 181 343 613 992 1 829 90 108 232 332 848 1 472 31 63 60 278 119 315
Swaziland 13 29 22 34 22 46 3 4 7 13 7 20 10 22 12 20 14 26
Tanzania 1 019 1 269 1 230 1 704 1 761 1 505 779 944 903 966 1 029 871 243 330 331 738 730 622
Togo 70 43 51 50 69 87 52 28 39 46 52 59 16 11 9 2 16 27
Tunisia 222 377 265 298 328 376 150 184 145 208 231 269 71 193 77 95 95 105
Uganda 817 790 710 976 1 198 1 198 578 386 466 587 684 704 233 402 238 388 512 492
Zambia 795 349 639 589 1 125 945 486 274 360 592 746 836 308 74 277 -8 377 109
Zimbabwe 176 162 199 186 187 368 193 149 178 161 166 179 -16 17 21 25 20 189
Africa Unspecified 1154 1196 1 554 2 107 2405 2176 970 1047 1341 1758 1944 1816 172 137 174 345 460 359
Africa Total 15 489 16 447 21 362 26 801 29 418 35 212 10 373 10 160 13 362 19 158 19 318 24 717 4 817 6 011 7 301 7 400 9 914 1 0269
Note: ODA : Official Development Assistance.

DAC : Development Assistance Committee of the OECD. http://dx.doi.org/10.1787/477345650642
* Libya was classified by the DAC as a recipient country for ODA from 2000 to 2004 and re-included in the classification in 2005.

Source: OECD Development Assistance Committee 2007.
Statistical Annex
595
596
Statistical Annex
Table 12 - External Debt Indicators

Debt outstanding, at year end Total debt outstanding Debt Service
(as % of GDP) (as % of Exports of goods and services)
Of which:
Total Multilateral Bilateral Private
($ million) (as %
of total)
Country 2005 2005 2005 2005 2005 2006 2007 2008 2005 2006 2007 2008

Algeria 17 185 14 77 9 16.7 8.0 7.4 6.7 12.4 14.9 3.6 3.8
Angola 12 353 3 57 40 37.6 31.6 27.3 25.1 10.7 4.2 5.3 4.7
Benin 2 103 72 28 0 48.3 20.9 20.7 20.7 14.8 15.3 13.8 13.4
Botswana 1 103 37 0 63 11.1 9.8 9.8 9.9 12.0 12.7 13.1 13.5
Burkina Faso 1 861 84 16 0 33.2 17.3 19.7 22.6 7.2 4.8 4.3 4.4
Burundi 1 426 80 20 0 178.4 152.7 140.7 128.5 41.6 44.7 32.8 30.0
Cameroon 6 200 22 73 5 37.2 3.0 3.8 4.8 15.4 14.5 6.8 6.8
Cape Verde 834 59 0 41 84.8 86.2 86.7 86.7 18.4 18.0 18.9 20.1
Central African Republic 1 268 61 35 4 92.1 87.3 83.4 79.8 0.0 0.0 … …
Chad 1 592 83 17 0 27.1 22.2 22.7 23.3 0.9 1.8 1.0 1.3
Comoros 266 72 28 0 72.0 71.1 55.8 50.0 8.5 7.7 21.5 19.7
Congo 5 904 20 52 28 99.0 71.2 73.8 67.3 11.7 5.8 5.5 5.3
Congo, Dem. Rep. 11 057 29 71 0 155.7 62.4 53.5 48.1 6.9 9.5 10.1 8.7
Côte d’Ivoire 12 306 29 51 20 75.2 83.1 54.1 48.5 1.3 2.2 0.0 0.0
Djibouti 439 65 35 0 61.9 59.0 65.2 79.6 10.1 9.9 8.8 9.8
Egypt. Arab Rep. 28 949 11 83 6 32.2 29.2 26.1 23.2 9.7 8.6 10.9 7.3
Equatorial Guinea 253 41 59 0 3.6 2.7 2.2 1.8 0.2 0.2 0.1 0.1
Eritrea 620 69 31 0 63.9 61.5 74.4 78.6 41.7 39.0 37.4 39.5
Ethiopia 6 703 75 24 1 58.9 55.1 54.4 51.7 4.9 5.1 4.6 4.5
Gabon 2 578 10 89 1 29.8 21.5 18.6 14.2 3.7 7.1 17.7 10.0
Gambia The 615 76 12 12 133.3 126.3 118.4 110.9 27.6 24.8 28.2 30.7
Ghana 8 655 75 13 12 80.9 93.1 91.6 88.7 5.8 6.6 1.2 1.4
Guinea 3 262 54 46 0 99.0 95.7 83.3 72.9 12.3 13.6 14.0 14.0
Guinea-Bissau 1 002 65 35 0 332.2 317.4 296.6 276.6 14.5 13.3 12.2 10.4
Kenya 5 031 52 43 5 26.9 17.9 19.1 20.1 7.1 6.6 7.0 6.9
Lesotho 721 75 17 8 49.1 46.6 45.9 44.7 12.5 9.3 9.4 8.8
Liberia … … … … … … … … … … … …
Libya 5 574 … … 43 14.4 11.4 9.9 9.4 … … … …
Madagascar 3 670 82 15 3 72.8 32.0 34.8 36.8 10.3 10.6 2.9 2.9
© AfDB/OECD 2007
Table 12 - External Debt Indicators (cont.)
Debt outstanding, at year end Total debt outstanding Debt Service
(as % of GDP) (as % of Exports of goods and services)
Of which:
Total Multilateral Bilateral Private
($ million) (as %
© AfDB/OECD 2007
of total)
Country 2005 2005 2005 2005 2005 2006 2007 2008 2005 2006 2007 2008
Malawi 11 355 81 19 0 546.6 181.4 165.6 165.5 17.4 16.6 16.4 15.9
Mali 3 421 75 25 0 62.9 26.7 27.4 31.7 5.4 4.2 3.6 3.4
Mauritania 2 325 62 30 8 124.2 51.2 42.5 41.1 6.7 4.8 2.0 2.3
Mauritius 896 12 80 8 14.3 13.4 12.0 10.7 6.4 4.8 4.1 3.6
Morocco 14 356 35 35 30 24.4 20.9 19.6 17.8 13.3 11.1 10.4 11.4
Mozambique 5 053 46 43 11 74.1 61.0 63.1 53.1 22.6 18.4 18.3 19.0
Namibia 1 327 … … 75 21.7 21.9 24.1 24.7 2.5 3.0 3.4 3.9
Niger 1 702 80 20 0 52.8 52.9 49.5 47.8 7.9 8.0 7.9 7.9
Nigeria 20 479 12 78 10 20.7 3.5 3.2 2.9 17.0 1.9 1.6 1.8
Rwanda 1 511 90 10 0 70.4 12.7 15.6 18.4 20.2 6.5 6.0 5.4
São Tomé and Principe 259 59 41 0 368.0 348.8 327.4 304.9 29.9 57.5 54.0 43.0
Senegal 3 515 67 0 33 40.0 18.0 18.4 18.4 7.2 6.9 5.2 4.9
Seychelles 467 10 55 35 67.3 64.1 65.8 64.9 4.6 8.2 5.0 5.3
Sierra Leone 628 53 43 4 51.8 48.0 46.8 45.2 14.9 10.8 3.2 6.2
Somalia … … … … … … … … … … … …
South Africa 46 209 1 10 89 19.3 19.3 18.8 17.8 8.4 8.8 8.5 8.5
Sudan 27 700 14 70 16 100.6 76.7 67.2 64.9 4.9 3.0 2.6 2.2
Swaziland 583 52 37 11 22.9 22.4 22.1 21.9 … … … …
Tanzania 6 358 62 30 8 50.5 61.5 25.3 24.6 7.1 5.1 102.9 2.5
Togo 1 537 53 47 0 72.9 65.4 57.6 51.2 8.3 6.7 6.6 5.8
Tunisia 16 744 31 38 31 58.4 58.0 51.3 50.2 15.5 17.1 15.7 15.5
Uganda 3 896 89 11 0 46.2 41.7 17.8 19.2 14.7 31.1 195.7 9.9
Zambia 4 131 55 45 0 56.8 4.2 5.0 5.7 6.7 2.1 2.0 2.6
Zimbabwe 4 969 35 16 49 110.6 62.0 20.3 23.8 20.8 16.3 7.7 7.2
Africa 324 579 30 44 26 110.6 62.0 20.3 23.8 20.8 16.3 7.7 7.2
Sources: IMF, World Economic Outlook ; GDF Online Database, Worldbank

http://dx.doi.org/10.1787/375017428145
Statistical Annex
597
598
Statistical Annex
Table 13 - Demographic Indicators

Total Urban Sex ratio Population Infant Total Mortality under Distribution by age
population population (males per growth rate mortality rate fertility rate age 5 (%)
(thousands) (% of total) 100 females) (%) (per 1000) (per 1000) 0-14 15-64 65+
2006 2006 2006 2000-05 2005-10 2006 2006 2006 2006
Algeria 33 354 60.5 101.9 1.6 1.5 32.3 2.4 35 28.9 67.4 3.7
Angola 16 400 38.0 97.3 2.5 2.8 131.8 6.5 233 46.3 52.8 0.9

Benin 8 703 46.9 101.8 3.0 3.2 99.1 5.5 150 43.9 55.0 1.0
Botswana 1 760 53.0 96.9 1.7 0.3 44.3 3.0 99 37.3 59.0 3.7
Burkina Faso 13 634 19.0 101.2 2.8 3.1 116.8 6.4 188 47.0 51.9 1.1
Burundi 7 834 11.0 95.7 1.1 2.8 100.3 6.8 176 44.6 54.6 0.8
Cameroon 16 601 53.7 99.1 2.3 1.9 91.4 4.2 157 40.8 56.4 2.7
Cape Verde 519 58.4 92.5 2.3 2.3 25.6 3.4 31 39.0 58.1 2.9
Central African Republic 4 093 44.3 95.4 2.1 1.4 94.2 4.7 169 42.8 54.0 3.2
Chad 10 032 26.2 98.0 3.1 3.4 112.4 6.7 196 47.3 51.1 1.6
Comoros 819 36.9 100.7 2.8 2.7 50.3 4.4 66 41.8 57.1 1.1
Congo 4 117 54.8 98.5 3.3 3.1 68.9 6.3 103 47.3 51.4 1.3
Congo, Dem. Rep. 59 320 33.4 98.5 2.3 2.7 113.7 6.7 200 47.4 51.6 1.0
Côte d’Ivoire 18 454 46.3 103.3 2.6 1.7 114.7 4.6 184 41.5 56.2 2.3
Djibouti 807 85.0 100.0 3.0 2.2 85.6 4.6 128 41.1 57.0 1.9
Egypt 75 437 42.4 100.5 1.9 1.9 31.4 3.0 36 33.3 63.0 3.7
Equatorial Guinea 515 50.9 98.1 2.4 2.3 96.0 5.9 172 44.5 52.8 2.7
Eritrea 4 560 21.3 96.6 2.5 4.2 58.5 5.1 84 44.6 54.8 0.5
Ethiopia 79 289 16.5 99.0 2.7 2.5 92.6 5.5 160 44.2 54.1 1.6
Gabon 1 406 85.7 99.3 2.6 1.8 52.4 3.6 89 39.6 57.1 3.4
Gambia 1 556 26.2 98.4 3.3 2.9 69.8 4.3 115 39.9 57.8 2.3
Ghana 22 556 46.8 102.5 2.3 2.2 57.0 3.9 93 38.6 58.8 2.6
Guinea 9 603 37.3 105.2 2.5 2.2 98.5 5.6 151 43.6 54.1 2.3
Guinea Bissau 1 634 36.4 97.7 2.8 3.0 112.7 7.1 198 47.7 50.9 1.5
Kenya 35 106 42.7 100.5 2.5 2.2 63.9 5.0 109 42.8 55.9 1.4
Lesotho 1 791 18.4 87.3 1.1 0.2 60.3 3.3 115 38.2 56.2 5.5
Liberia 3 356 48.5 99.6 6.6 2.0 134.0 6.8 212 47.2 52.1 0.7
Libya 5 968 87.2 106.4 2.0 2.0 17.2 2.8 19 29.8 67.1 3.0
Madagascar 19 105 27.3 99.0 3.0 2.8 72.7 5.0 121 43.8 54.6 1.6
© AfDB/OECD 2007
Table 13 - Demographic Indicators (cont.)
Total Urban Sex ratio Population Infant Total Mortality under Distribution by age
population population (males per growth rate mortality rate fertility rate age 5 (%)
(thousands) (% of total) 100 females) (%) (per 1000) (per 1000) 0-14 15-64 65+
2006 2006 2006 2000-05 2005-10 2006 2006 2006 2006
© AfDB/OECD 2007
Malawi 13 166 17.6 98.8 2.4 2.3 104.2 5.8 170 47.3 50.9 1.7
Mali 13 918 34.4 99.4 2.7 3.0 127.4 6.7 209 48.2 50.7 1.1
Mauritania 3 158 65.5 97.9 2.8 3.0 89.8 5.5 144 43.0 55.2 1.8
Mauritius* 1 256 44.0 98.6 1.1 1.0 14.0 1.9 17 24.2 69.7 6.1
Morocco 31 943 59.4 98.8 1.6 1.5 32.7 2.6 39 30.7 65.4 3.9
Mozambique 20 158 39.1 94.1 2.6 2.0 92.7 5.2 166 43.8 53.8 2.3
Namibia 2 052 34.0 98.5 2.8 1.5 38.0 3.6 73 40.8 56.3 2.9
Niger 14 426 23.9 104.7 3.4 3.4 146.8 7.6 251 49.0 50.8 0.2
Nigeria 134 375 49.1 102.6 2.5 2.3 109.3 5.4 191 44.0 54.2 1.8
Rwanda 9 230 23.6 94.1 6.2 3.1 113.0 5.3 191 43.1 55.6 1.3
São Tomé and Principe 160 38.1 98.6 1.8 2.2 79.0 3.7 106 39.2 57.9 2.8
Senegal 11 936 51.8 96.8 2.5 2.4 78.4 4.6 124 42.2 56.0 1.8
Seychelles 81 50.8 ... 0.5 0.8 ... ... ... ... ... ...
... ...
Sierra Leone 5 679 40.9 97.3 1.5 3.9 160.8 6.5 281 42.9 55.0 2.2
Somalia 8 496 36.5 98.5 1.7 3.2 115.7 6.1 192 44.2 55.0 0.8
South Africa 47 594 58.3 96.6 1.8 0.9 39.6 2.7 73 32.4 63.3 4.3
Sudan 36 992 41.7 101.4 2.3 2.0 66.4 4.0 109 39.0 58.7 2.3
Swaziland 1 029 24.1 93.5 1.5 0.3 65.6 3.6 137 40.4 55.7 4.0
Tanzania 39 025 38.5 99.2 2.4 2.0 104.1 4.6 162 42.3 55.5 2.2
Togo 6 306 37.0 97.6 3.4 2.8 88.5 4.9 129 43.2 55.1 1.6
Tunisia 10 210 64.7 101.5 1.3 1.1 19.7 1.9 22 25.2 69.1 5.7
Uganda 29 857 12.5 100.2 3.0 3.4 77.5 7.1 130 50.5 48.9 0.6
Zambia 11 861 36.9 100.5 2.3 1.8 89.7 5.3 163 45.6 52.3 2.1
Zimbabwe 13 085 36.4 98.7 1.4 0.7 59.5 3.3 114 39.5 57.1 3.4
Africa 924 320 40.1 99.9 2.4 2.2 82.5 4.7 138 41.3 56.5 2.2
Note: * Including Agalega, Rodrigues and Saint Brandon.

Sources: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects, The 2004 Revision.
http://dx.doi.org/10.1787/061700738332
Statistical Annex
599
600
Statistical Annex
Table 14 - Poverty and Income Distribution Indicators

National poverty line* International poverty line Gini Share
Population below the poverty line (%) Population below the poverty line (%) Coefficient** of consumption (%)
Survey year Rural Urban National Survey year Below $1 Below $2 Survey year Index Lowest 10% Highest 10%
Algeria 1998 16.6 7.3 12.2 1995 1.8 15.1 1995 35.3 2.8 26.8
Angola 2001 94.3 57.0 68.0 ... ... ... ... ... ... ...
Benin 2002 31.6 23.6 28.5 2003a 30.9 73.7 2003 36.5 3.1 29.0

Botswana 2002-2003 … … 30.3 1993a 23.5 50.1 1993 63.0 0.7 56.6
Burkina Faso 2003 52.3 19.9 46.4 2003a 27.2 71.8 2003 39.5 2.8 32.2
Burundi 1990 36.0 43.0 36.2 1998a 54.6 87.6 1998 42.4 1.7 32.8
Cameroon 2001 49.9 22.1 40.2 2001a 17.1 50.6 2001 44.6 2.3 35.4
Cape Verde 1989-1994 ... ... 44.0 ... ... ... ... ... ... ...
Central African Republic ... ... ... ... 1993a 66.6 84.0 1993 61.3 0.7 47.7
Chad 1995-1996 67.0 63.0 64.0 ... ... ... ... ... ... ...
Comoros ... ... ... ... ... ... ... ... 33.9 ... ...
Congo ... ... ... ... ... ... ... ... ... ... ...
Congo, Dem. Rep. ... ... ... ... ... ... ... ... ... ... ...
Côte d’Ivoire 1998 41.8 23.4 33.6 2002a 14.8 48.8 2002 44.6 2.0 34.0
Djibouti 1996 86.5 ... 45.1 ... ... ... ... 38.6 ... ...
Egypt 2004-2005 … … 20.0 1999-2000a 3.1 43.9 2000 34.4 3.7 29.5
Equatorial Guinea ... ... ... ... ... ... ... ... ... ... ...
Eritrea 1993-1994 ... ... 53.0 ... ... ... ... ... ... ...
Ethiopia 1999-2000 45.0 37.0 44.2 1999-2000a 23.0 77.8 2000 30.0 3.9 25.5
Gabon 1994 ... ... 62* 1994 23.0 ... ... 63.2 ... ...
Gambia 1998 ... ... 64.0 1998a 59.3 82.9 1998 50.2 1.8 37.0
Ghana 1998-99 51.6 22.8 42.6 1998-99a 44.8 78.5 1999 40.8 2.1 30.0
Guinea 1994 ... ... 40.0 1991 26.3 50.2 1994 40.3 2.6 32.0
Guinea Bissau 2002 ... ... 20.8 1991 88.2 96.7 1993 47.0 2.1 39.3
Kenya 2000 51.0 49.0 51.8 1997a 22.8 58.3 1997 42.5 2.5 33.9
Lesotho 1993 53.9 27.8 49.2 1995a 36.4 56.1 1995 63.2 0.5 48.3
Liberia 2002 ... ... 76.2 ... ... ... ... ... ... ...
Libya ... ... ... ... ... ... ... ... ... ... ...
Madagascar 2004 77.0 54.0 72.0 2001a 61.0 85.1 2001 47.5 1.9 36.6
© AfDB/OECD 2007
Table 14 - Poverty and Income Distribution Indicators (cont.)
National poverty line* International poverty line Gini Share
Population below the poverty line (%) Population below the poverty line (%) Coefficient** of consumption (%)
Survey year Rural Urban National Survey year Below $1 Below $2 Survey year Index Lowest 10% Highest 10%
Malawi 1997-1998 66.5 54.9 65.3 1997-98a 41.7 76.1 1997 50.3 1.9 42.2
© AfDB/OECD 2007
Mali 1999 71.0 31.0 64.2 1994a 72.8 90.6 1994 50.5 1.8 40.4
Mauritania 2000 61.2 25.4 46.3 2000a 25.9 63.1 2000 39.0 2.5 29.5
Mauritius 1997 ... ... 12.1 ... ... ... ... 36.7 ... ...
Morocco 1999 27.2 12.0 19.0 1999a <2 14.3 1999 39.5 2.6 30.9
Mozambique 2002-2003 55.0 52.0 54.0 1996a 37.9 78.4 1997 39.6 2.5 31.7
Namibia ... ... ... ... 1993 34.9 55.8 1993 74.3 0.5 64.5
Niger 1993 66.0 52.0 63.0 1995a 60.6 85.8 1995 50.5 0.8 35.4
Nigeria 2003-04 63.3 43.2 54.4 2003a 70.8 92.4 2003 43.7 1.9 33.2
Rwanda 1999-2000 65.7 14.3 60.3 1999-00a 51.7 83.7 1985 28.9 4.2 24.2
São Tomé and Principe 2001 ... ... 53.8 ... ... ... ... ... ... ...
Senegal 2002 57.5 ... 48.5 1995a 22.3 63.0 1995 41.3 2.6 33.5
Seychelles ... ... ... ... ... ... ... ... ... ... ...
Sierra Leone 2003-2004 79.0 56.4 70.0 1989a 57.0 74.5 1989 62.9 0.5 43.6
Somalia ... ... ... ... ... ... ... ... ... ... ...
South Africa 2001 ... ... 57.0 2000a 10.7 34.1 2000 57.8 1.4 44.7
Sudan ... ... ... ... ... ... ... ... ... ... ...
Swaziland 1995 ... ... 40.0 1994a 8.0 22.5 1994b 60.9 1.0 50.2
Tanzania 2000-01 38.7 29.5 35.7 2000-01a 57.8 89.9 2000–01 34.6 2.9 26.9
Togo 1995 ... ... 72.2 ... ... ... ... ... ... ...
Tunisia 2000 ... ... 4.2 2000a <2 6.6 2000 39.8 2.3 31.5
Uganda 2003 … … 38.0 1999a 84.9 96.6 1999 43.0 2.3 34.9
Zambia 2002-03 … … 67.0 2002-03a 75.8 94.1 2002–03 42.1 2.4 33.7
Zimbabwe 1995-96 48.0 7.9 34.9 1995-96a 56.1 83.0 1995 50.1 1.8 40.3
Note: * The national poverty line is defined as two-thirds of the average consumption.
** The Gini coefficient is defined on consumption.
http://dx.doi.org/10.1787/763006236207
a Consumption base.
b Income base.

Sources: Domestic authorities and World Bank (2006), World Development Report, Country DHS,
Statistical Annex
601
602
Statistical Annex
Table 15 - Access to Services

Telecommunications Access to electricity Water supply coverage Sanitation coverage
Main telephone line Mobile lines Final consumption Distribution losses Total Urban Rural Total Urban Rural
per 100 inhabitants per 100 inhabitants (GWh) (%) (%)
2000 2005 2000 2005 2000 2004 2000 2004 2004 2004
Algeria 5.79 7.82 0.28 41.52 18 592 23 608 4 105 4 976 85 88 80 92 99 82

Angola 0.49 0.59 0.2 6.86 1 157 1 799 211 325 53 75 40 31 56 16
Benin 0.81 1.02 0.87 5.33 399 545 59 114 48 57 41 40 64 19
Botswana 8.27 7.48 12.17 46.63 1 959 2 041 164 131 95 100 90 42 57 25
Burkina Faso 0.47 0.74 0.22 4.33 … … … … 63 70 60 11 14 10
Burundi 0.3 0.39 0.24 2.03 … … … … 79 92 77 36 47 35
Cameroon 0.63 0.61 0.68 13.84 2 719 3 320 761 790 66 86 44 51 58 43
Cape Verde 12.57 14.09 4.54 16.12 … … … … 80 86 73 43 61 19
Central African Republic 0.26 0.26 0.14 1.53 … … … … 75 93 61 27 47 12
Chad 0.14 0.15 0.07 2.15 … … … … 42 41 43 9 24 4
Comoros 0.98 2.12 - 2.01 … … … … 86 92 82 33 41 29
Congo 0.75 0.36 2.38 12.25 260 314 180 293 58 84 27 27 28 25
Congo, Dem. Rep. - - - 4.77 2 442 2 254 228 211 22 37 12 9 8 10
Côte d’Ivoire 1.78 1.53 3.2 12.06 2 757 3 032 699 847 84 97 74 37 46 29
Djibouti 1.54 1.63 - 5.07 … … … … 73 76 59 82 88 50
Egypt 8.64 14.04 2.14 18.41 64 330 85 088 10 750 12 315 98 99 97 70 86 58
Equatorial Guinea 1.35 1.99 1.1 19.26 … … … … 43 45 42 53 60 46
Eritrea 0.84 0.86 - 0.92 173 224 38 48 60 74 57 9 32 3
Ethiopia 0.37 0.79 - 0.53 1 419 2 051 167 254 39 83 31 12 50 4
Gabon 3.18 2.83 9.79 46.95 989 1 154 234 273 88 95 47 36 37 30
Gambia 2.65 2.9 0.45 16.31 … … … … 82 95 77 53 72 46
Ghana 1.08 1.45 0.66 12.85 6 055 5 318 1 616 890 56 61 52 35 40 31
Guinea 0.32 0.34 0.56 2.36 … … … … 50 78 35 18 31 11
Guinea Bissau 0.93 0.82 - 5.01 … … … … 59 79 49 35 57 23
Kenya 0.95 0.82 0.42 13.46 3 408 4 669 867 968 62 89 46 48 56 43
Lesotho 1.24 2.67 1.21 13.65 … … … … 79 92 76 37 61 32
Liberia 0.21 ... 0.05 4.87 … … … … 61 72 52 27 49 7
Libya 10.79 13.56 0.71 4.15 10 132 12 059 3 592 5 740 - - - 97 97 96
Madagascar 0.34 0.36 0.39 2.71 … … … … 31 67 16 56 75 49
© AfDB/OECD 2007
Table 15 - Access to Services (cont.)
Telecommunications Access to electricity Water supply coverage Sanitation coverage

Main telephone line Mobile lines Final consumption Distribution losses Total Urban Rural Total Urban Rural
per 100 inhabitants per 100 inhabitants (GWh) (%) (%)
2000 2005 2000 2005 2000 2004 2000 2004 2004 2004
© AfDB/OECD 2007
Malawi 0.45 0.8 0.47 3.33 … … … … 67 96 62 46 66 42
Mali 0.38 0.66 0.1 7.66 … … … … 50 78 36 46 59 39
Mauritania 0.74 1.34 0.6 24.3 … … … … 40 30 49 36 55 20
Mauritius 23.53 28.84 15.08 57.29 … … … … 100 100 100 94 95 94
Morocco 4.96 4.26 8.16 39.37 12 838 16 288 2 122 3 116 81 99 56 73 88 52
Mozambique 0.5 0.37 0.3 6.16 1 013 7 019 243 1 187 40 37 41 36 38 35
Namibia 6.19 6.36 4.61 24.37 2 386 2 790 260 304 87 98 81 25 50 13
Niger 0.19 0.17 - 2.15 … … … … 59 64 57 18 79 5
Nigeria 0.49 0.93 - 14.13 8 688 12 892 5 618 6 809 48 67 31 44 53 36
Rwanda 0.23 0.27 0.5 3.21 … … … … 46 66 44 8 8 8
São Tomé and Principe 3.3 4.61 - 7.67 … … … … 79 89 73 25 32 20
Senegal 2.16 2.29 2.63 14.84 1 337 1 919 236 346 75 90 64 33 57 17
Seychelles 26.72 26.54 33.63 70.68 … … … … 88 100 75 - - 100
Sierra Leone 0.42 ... 0.26 2.21 … … … … 57 75 46 39 53 30
Somalia 0.36 1.22 1.14 6.08 … … … … 29 32 27 26 48 14
South Africa 10.88 9.97 18.28 71.6 162 516 197 497 17 053 14 710 88 99 73 65 79 46
Sudan 1.24 1.85 0.07 5.04 2 058 3 259 376 607 70 78 64 34 50 24
Swaziland 3.16 3.39 3.27 19.36 … … … … 62 87 54 48 59 44
Tanzania 0.5 0.39 0.32 5.16 1 913 1 927 555 578 52 85 42 90 90 90
Togo 0.92 0.95 1.08 7.22 521 521 36 89 52 80 36 35 71 15
Tunisia 9.99 12.47 1.25 56.32 8 979 10 820 1 117 1 543 93 99 82 85 96 65
Uganda 0.25 0.35 0.52 5.29 … … … … 66 67 61 60 71 58
Zambia 0.78 0.81 0.92 8.11 6 039 7 712 249 338 62 86 37 27 41 13
Zimbabwe 2.19 2.76 2.34 5.87 10 494 10 117 1 422 1 472 81 98 72 53 63 47
Africa 2.52 3.09 2 15.03 345 789* 431 683* 53 377* 59 758* 62 83 50 44 58 34
Sources: Telecommunications: International telecommunication Union - online database, 2006.

Electricity: International Energy Agency - online database, 2006
Water supply coverage and sanitation coverage: WHO and UNICEF, 2006, Joint Reporting Form and WHO regional offices reports; October 2006
Data for Benin, Burkina, DRC, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia are from Getting Africa on track to meet
the MDGs on water and sanitation, a Status Review of Sixteen African Countries, 2006, Report on a regional initiative by AMCOW, AfDB, EUWI, WSP and UNDP.

http://dx.doi.org/10.1787/730873623306
Statistical Annex
603
604
Statistical Annex
Table 16 - Basic Health Indicators

Life expectancy Undernourishment Food Total health expenditure Health personnel
at birth (years) availability
prevalence as % Per capita** Distribution (per 100 000)
With Without (%) (Kcal/person/day) of GDP Public Private
AIDS AIDS ($) (%) (%) Survey Physicians Nurses
2006 2005-10 2002-04 2004 2003 year

Algeria 72.0 … … 4 3 114 4.1 89.0 80.8 19.2 2005 92.9 238.2
Angola 41.7 41.9 45.7 35 2 178 2.8 26.0 84.2 15.8 2005 16.7 247.8
Benin 55.5 55.9 59.1 12 2 652 4.4 20.0 43.1 56.9 2005 4.3 26.3
Botswana 34.4 33.9 70.0 … 2 084 5.6 232.0 58.2 41.8 2005 37.7 240.3
Burkina Faso 48.9 49.3 54.5 15 2 529 5.6 19.0 46.8 53.2 2005 2.7 32.3
Burundi 45.1 45.6 52.5 66 1 682 3.1 3.0 23.3 76.7 2005 6.7 79.1
Cameroon 46.2 46.3 54.4 26 2 212 4.2 37.0 28.9 71.1 2005 20.1 47.8
Cape Verde 71.4 … … … 3 058 4.6 78.0 73.2 26.8 2004 46.7 82.8
Central African Republic 39.5 39.5 54.5 44 2 004 4.0 12.0 38.6 61.4 2005 4.7 29.8
Chad 44.2 44.3 49.5 35 2 137 6.5 16.0 39.9 60.1 2005 3.6 24.7
Comoros 64.7 … … … 1 787 2.7 11.0 54.1 45.9 2005 14.8 75.9
Congo 53.2 53.5 61.0 60 2 130 2.0 19.0 64.2 35.8 2005 19.5 91.1
Congo, Dem. Rep. 44.4 44.7 49.3 33 1 560 4.0 28.0 18.3 81.7 2004 10.4 51.5
Côte d’Ivoire 46.2 46.2 55.2 74 2 637 3.6 4.0 27.6 72.4 2004 11.6 57.0
Djibouti 53.7 53.9 57.5 13 2 350 5.7 47.0 66.9 33.1 2004 16.6 33.0
Egypt 70.9 … … 24 3 286 5.1 55.0 38.6 61.4 2004 53.0 202.0
Equatorial Guinea 41.9 41.5 54.1 4 … 5.8 96.0 42.6 57.4 2004 31.1 46.3
Eritrea 55.5 56.0 59.9 … 1 465 1.5 8.0 67.5 32.5 2004 5.1 59.2
Ethiopia 48.3 48.5 54.3 … 1 840 4.4 5.0 45.5 54.5 2004 1.6 14.0
Gabon 53.6 53.3 65.0 46 2 707 5.9 196.0 58.4 41.6 2004 29.0 511.9
Gambia 57.3 57.7 59.5 5 2 178 4.4 21.0 66.6 33.4 2003 10.9 119.6
Ghana 57.8 58.1 63.0 29 2 723 8.1 16.0 40.0 60.0 2004 15.0 91.0
Guinea 54.2 54.4 59.4 11 2 426 4.5 22.0 31.8 68.2 2004 10.7 51.7
Guinea Bissau 45.3 45.5 49.6 24 2 001 5.4 9.0 16.6 83.4 2004 12.2 67.4
Kenya 49.6 50.3 61.4 39 2 149 5.6 20.0 45.8 54.2 2005 26.1 125.3
Lesotho 34.8 34.3 65.6 31 2 495 4.3 31.0 38.7 61.3 2003 4.9 62.4
Liberia 42.5 42.5 48.4 … 1 923 5.2 6.0 79.7 20.3 2004 3.2 18.9
Libya 74.3 … … 50 3 476 4.7 171.0 56.7 43.3 2002 120.0 355.5
Madagascar 56.0 56.2 58.8 3 2 070 4.1 8.0 62.9 37.1 2004 28.7 31.3
© AfDB/OECD 2007
Table 16 - Basic Health Indicators (cont.)
Life expectancy Undernourishment Food Total health expenditure Health personnel
at birth (years) availability
prevalence as % Per capita** Distribution (per 100 000)
With Without (%) (Kcal/person/day) of GDP Public Private
AIDS AIDS ($) (%) (%) Survey Physicians Nurses
© AfDB/OECD 2007
2006 2005-10 2002-04 2004 2003 year
Malawi 40.8 41.1 58.8 38 2 077 2.7 13.0 63.4 36.6 2004 2.1 57.6
Mali 49.0 49.3 51.8 35 2 163 9.3 16.0 35.2 64.8 2004 8.0 49.8
Mauritania 54.1 … … 29 2 640 4.8 17.0 57.4 42.6 2004 10.5 63.5
Mauritius* 72.8 … … 10 2 999 4.2 172.0 76.8 23.2 2004 105.7 369.0
Morocco 70.7 … … 5 3 158 3.7 72.0 60.8 39.2 2004 54.1 86.4
Mozambique 41.8 41.8 54.9 6 2 057 5.1 12.0 33.1 66.9 2004 2.6 20.4
Namibia 46.4 45.9 70.0 44 2 174 4.7 145.0 61.7 38.3 2004 29.8 305.8
Niger 45.2 45.4 47.0 … 2 121 6.4 9.0 70.0 30.0 2004 2.8 20.1
Nigeria 44.0 44.2 50.3 32 2 720 4.7 22.0 53.0 47.0 2003 27.7 167.0
Rwanda 44.4 44.6 49.4 9 2 173 6.2 7.0 25.5 74.5 2004 4.5 40.5
São Tomé and Principe 63.8 … … 33 2 525 8.6 34.0 83.9 16.1 2004 53.0 167.4
Senegal 56.8 … … 10 2 414 5.1 29.0 41.8 58.2 2004 5.2 28.9
Seychelles 71.9 … … 20 2 426 5.9 522.0 73.2 26.8 2004 151.4 793.4
Sierra Leone 41.6 41.9 43.8 9 1 849 3.5 7.0 58.3 41.7 2004 3.1 34.5
Somalia 48.3 … … … … … n.a. … … 1997 4.8 23.0
South Africa 45.0 44.1 68.4 … 3 004 8.4 295.0 38.6 61.4 2004 73.8 390.7
Sudan 56.8 56.9 60.6 3 2 311 4.3 21.0 43.2 56.8 2005 22.1 49.5
Swaziland 30.5 29.9 65.5 26 2 224 5.8 107.0 57.3 42.7 2004 16.5 660.2
Tanzania 46.5 46.6 58.0 … 1 963 4.3 16.0 55.4 44.6 2002 2.3 36.7
Togo 55.5 55.8 62.0 44 2 334 5.6 137.0 24.8 75.2 2004 3.8 35.8
Tunisia 73.9 … … 24 3 344 5.4 18.0 45.7 54.3 2004 98.1 296.0
Uganda 51.1 52.1 57.5 3 2 348 7.3 12.0 30.4 69.6 2004 7.9 58.3
Zambia 38.8 39.1 55.7 19 1 947 5.4 21.0 51.4 48.6 2004 11.0 165.6
Zimbabwe 37.3 37.3 64.3 47 1 978 7.9 40.0 35.9 64.1 2004 16.1 72.3
Africa 51.4 46.4 55.5 20 2 435 5.6 42.9 49.3 50.7 … … …
Note: *Including Agalega, Rodrigues and Saint Brandon

** at average exchange rate

Sources: Life expectancy at birth : United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects, The 2004 Revision, ADB Statistics Department.
http://dx.doi.org/10.1787/121137204756
Statistical Annex
605
606
Statistical Annex
Table 17 - Major Diseases

Healthy life expectancy HIV/AIDS Malaria Tuberculosis Measles Vaccination
at birth (years) People living with Adult AIDS orphans notified cases notified cases incidence coverage (%)
HIV/AIDS prevalence cumulative MCV DTP3
Total Male Female (000) (%) (000)
Survey Notified 2003 2004 2003 2004
2002 end-2005 year cases

Algeria 60.6 59.7 61.6 19 0.1 … 1997 197 19 730 2 302 83 88
Angola 33.4 31.6 35.1 320 3.7 160 2002 1 409 328 36 079 258 45 47
Benin 44.0 43.4 44.5 87 1.8 62 1997 670 857 2 932 210 85 93
Botswana 35.7 36.0 35.4 270 24.1 120 1995 17 599 9 862 8 90 97
Burkina Faso 35.6 34.9 36.3 150 2.0 120 1995 501 020 2 620 253 84 96
Burundi 35.1 33.4 36.8 150 3.3 120 1995 932 794 6 822 0 75 74
Cameroon 41.5 41.1 41.8 510 5.4 240 1997 645 309 15 964 605 68 80
Cape Verde 60.8 58.8 62.9 0 … … 1997 20 205 0 65 73
Central African Republic 37.4 37.0 37.7 250 10.7 140 2003 95 644 4 837 471 35 40
Chad 40.7 39.7 41.7 180 3.5 57 1995 343 186 5 077 2 23 20
Comoros 54.6 53.9 55.3 <500 <0.1 … 1996 15 509 ... 912 80 80
Congo 46.3 45.3 47.3 120 5.3 110 1997 9 491 7 782 146 56 65
Congo, Dem. Rep. 37.1 35.0 39.1 1 000 3.2 680 2003 4 386 638 84 687 182 485 70 73
Côte d’Ivoire 39.5 37.6 41.3 750 7.1 450 1997 983 089 17 782 117 51 56
Djibouti 42.9 42.5 43.2 15 3.1 6 1997 4 314 3 231 298 65 71
Egypt 59.0 57.8 60.2 5 <0.1 … 1997 11 11 490 77 98 98
Equatorial Guinea 45.5 44.7 46.3 9 3.2 5 1995 12 530 416 ... 51 33
Eritrea 50.0 49.3 50.8 59 2.4 36 2003 72 023 2 805 19 84 83
Ethiopia 41.2 40.7 41.7 … … … 2003 565 273 117 600 357 59 69
Gabon 51.4 50.2 52.6 60 7.9 20 1997 35 842 2 174 0 55 38
Gambia 49.5 48.5 50.5 20 2.4 4 ... ... 1 945 0 84 88
Ghana 49.8 49.2 50.3 320 2.3 170 2003 3 552 869 11 891 435 83 84
Guinea 44.8 43.9 45.6 85 1.5 28 1997 802 210 6 199 99 59 69
Guinea Bissau 40.5 39.6 41.5 32 3.8 11 ... ... 1 600 0 80 80
Kenya 44.4 44.1 44.8 1 300 6.1 1 100 2002 124 197 91 522 153 69 76
Lesotho 31.4 29.6 33.2 270 23.2 97 ... ... 10 111 ... 85 83
Liberia 35.3 33.6 37.0 … … … ... ... 1 753 8 94 87
Libya 63.7 62.3 65.0 … … … ... ... 1 917 292 97 98
Madagascar 48.6 47.3 49.9 49 0.5 13 ... ... 19 309 ... 59 61
© AfDB/OECD 2007
Table 17 - Major Diseases (cont.)
Healthy life expectancy HIV/AIDS Malaria Tuberculosis Measles Vaccination
at birth (years) People living with Adult AIDS orphans notified cases notified cases incidence coverage (%)
HIV/AIDS prevalence cumulative MCV DTP3
Total Male Female (000) (%) (000)
Survey Notified 2003 2004 2003 2004
© AfDB/OECD 2007
2002 end-2005 year cases
Malawi 34.9 35.0 34.8 940 14.1 550 2002 2 853 317 25 841 184 82 93
Mali 37.9 37.5 38.3 130 1.7 94 2003 809 428 4 496 33 86 85
Mauritania 44.5 42.8 46.3 12 0.7 7 ... ... 3 067 127 61 71
Mauritius 62.4 60.3 64.6 4 0.6 … 1997 65 ... 7 98 97
Morocco 60.2 59.5 60.9 19 0.1 … 2000 59 26 789 ... 97 98
Mozambique 36.9 36.3 37.5 1 800 16.1 510 2003 5 087 865 28 602 12 598 77 72
Namibia 43.3 42.9 43.8 230 19.6 85 2003 444 081 11 776 4 73 86
Niger 35.5 35.8 35.2 79 1.1 46 1997 978 855 7 078 2 183 83 89
Nigeria 41.5 41.3 41.8 2 900 3.9 930 2003 2 608 479 44 184 110 927 35 25
Rwanda 38.3 36.4 40.2 190 3.1 210 1997 1 210 775 6 011 129 89 95
São Tomé and Principe 54.4 54.2 54.7 61 … … ... ... ... 0 88 97
Senegal 48.0 47.1 48.9 0 0.9 25 1995 628 773 9 410 0 74 84
Seychelles 61.2 57.4 64.9 48 … … ... ... ... 0 99 99
Sierra Leone 28.6 27.2 29.9 44 1.6 31 ... ... 5 289 29 67 64
Somalia 36.8 36.1 37.5 0 0.9 23 2003 23 349 9 278 ... 35 35
South Africa 44.3 43.3 45.3 5 500 18.8 1 200 1996 29 160 227 320 615 82 94
Sudan 48.5 47.2 49.9 350 1.6 … 2003 3 084 320 25 095 1 374 60 59
Swaziland 34.2 33.2 35.2 220 33.4 63 ... ... 6 748 0 60 71
Tanzania 40.4 40.0 40.7 1 400 6.5 1 100 2003 10 712 526 61 579 23 91 90
Togo 44.6 43.5 45.7 110 3.2 88 ... ... 1 766 38 70 82
Tunisia 62.5 61.3 63.6 9 0.1 … ... ... 1 965 15 96 98
Uganda 42.7 41.7 43.7 1 000 6.7 1 000 2003 12 343 411 41 795 22 86 84
Zambia 34.9 34.8 35.0 1 100 17.0 710 2001 2 010 185 53 932 45 84 80
Zimbabwe 33.6 33.8 33.3 1 700 20.1 1 100 1995 330 002 53 183 420 85 90
Africa 44.6 43.8 45.3 23 876 6.4 11 521 ... ... 1 153 546 318 280 68 70
Notes: DTP: Diphtheria, tetanus toxoids and pertussis antigen. MCV: Measles Contaning Vaccine.
Sources: UNAIDS and WHO, Country epidemic updates September 2006; Malaria notified cases: WHO, Roll Back Malaria (RBM) database; World Malaria Report, 2005.
Tuberculosis notified cases: WHO, 2006, Global Tuberculosis Database; Vaccination coverage and Measles incidence: WHO Vaccine Immunization and Biological, 2005 Global Summary. WHOSIS,

February 2007.
http://dx.doi.org/10.1787/567153014637
Statistical Annex
607
608
Statistical Annex
Table 18 - Basic Education Indicators

Estimated adult illiteracy rate (%) Estimated youth illiteracy rate (%) Public expenditure on education
Latest available 1999-2004 Latest available 1999-2004 Latest available 2002-04
(people over 15) (people between 15 and 24)
Total Male Female Total Male Female (% of GDP)
Algeria 30.1 20.4 39.9 8.0 4.8 11.3 ...

Angola 32.6 17.1 45.8 ... ... ... ...

Benin 65.3 52.1 76.7 41.0 23.9 57.9 3.3
Botswana 18.8 19.6 18.2 9.6 13.1 6.1 ...
Burkina Faso 78.2 70.6 84.8 59.7 49.0 70.7 ...
Burundi 40.7 32.7 47.8 30.6 30.8 30.3 5.2
Cameroon 32.1 23.0 40.2 7.2 6.2 8.3 3.8
Cape Verde 21.3 12.9 28.3 9.3 7.0 11.6 7.3
Central African Republic 51.4 35.2 66.5 26.0 19.8 32.0 ...
Chad 74.3 59.2 87.2 25.6 20.8 30.3 ...
Comoros 43.0 36.0 50.1 40.5 33.9 47.2 3.9
Congo 13.4 8.3 18.1 1.5 1.1 2.0 3.2
Congo, Dem. Rep. 32.8 19.1 45.9 13.6 8.7 18.5 ...
Côte d’Ivoire 51.3 39.2 61.4 33.7 26.0 41.3 ...
Djibouti 28.7 19.5 37.4 12.1 9.0 15.1 6.1
Egypt 28.6 17.0 40.6 26.5 21.2 32.1 ...
Equatorial Guinea 13.0 6.6 19.5 1.9 1.0 2.9 0.6
Eritrea 38.6 27.7 49.3 25.5 16.7 34.4 3.8
Ethiopia 53.7 46.7 60.7 39.0 34.2 43.7 4.6
Gabon ... ... ... ... ... ... ...
Gambia 56.3 48.9 63.4 35.6 28.2 42.9 1.9
Ghana 42.1 33.6 50.2 6.2 4.8 7.6 ...
Guinea 70.5 57.4 81.9 ... ... ... ...
Guinea Bissau 53.9 38.8 68.2 35.0 22.9 47.1 ...
Kenya 26.4 22.3 29.8 3.3 3.0 3.6 7.0
Lesotho 17.8 26.3 9.7 8.0 14.9 1.0 9.0
Liberia 40.2 24.1 56.3 26.0 11.6 40.3 ...
Libya 15.3 6.2 24.9 2.3 0.2 4.5 ...
Madagascar 29.3 23.5 34.7 16.6 14.0 19.3 3.3
© AfDB/OECD 2007
Table 18 - Basic Education Indicators (cont.)
Estimated adult illiteracy rate (%) Estimated youth illiteracy rate (%) Public expenditure on education
Latest available 1999-2004 Latest available 1999-2004 Latest available 2002-04
(people over 15) (people between 15 and 24)
Total Male Female Total Male Female (% of GDP)
© AfDB/OECD 2007
Malawi 35.9 25.1 46.0 25.5 16.8 34.3 6.0
Mali 81.0 73.3 88.1 59.2 48.2 70.2 ...
Mauritania 48.8 40.5 56.6 49.3 42.1 56.5 3.4
Mauritius 15.6 11.6 19.5 5.1 5.8 4.3 4.7
Morocco 47.7 34.3 60.4 27.2 20.5 34.0 6.3
Mozambique 48.3 33.2 62.9 33.7 21.2 46.2 ...
Namibia 15.0 13.2 16.5 6.8 8.4 5.1 7.2
Niger 71.3 57.1 84.9 73.3 63.5 83.1 2.3
Nigeria 28.1 21.5 34.4 8.9 7.6 10.3 ...
Rwanda 35.1 28.6 40.2 12.8 12.1 13.4 ...
São Tomé and Principe 15.1 ... ... ... ... ... ...
Senegal 60.7 48.9 70.8 43.8 35.9 51.7 4.0
Seychelles 8.2 8.6 7.7 ... ... ... 5.4
Sierra Leone 64.9 53.1 75.6 ... ... ... ...
Somalia ... ... ... ... ... ... ...
South Africa 17.6 15.9 19.1 7.5 7.5 7.5 5.4
Sudan 39.1 28.9 48.2 18.1 14.5 21.8 ...
Swaziland 20.4 19.1 21.7 7.5 8.4 6.7 6.2
Tanzania 30.6 22.5 37.8 6.9 5.4 8.4 ...
Togo 46.8 31.3 61.5 19.6 10.0 29.1 2.6
Tunisia 25.7 16.6 34.7 4.3 1.4 7.3 8.1
Uganda 33.2 23.2 42.3 17.7 12.3 23.0 5.2
Zambia 32.0 23.7 40.2 9.4 7.6 11.2 2.8
Zimbabwe 7.6 4.5 10.7 1.8 0.7 2.9 ...
Africa 43.3 34.5 52.4 20.2 16.1 24.2

Sources: UNESCO Institute for Statistics (UIS) Database.
http://dx.doi.org/10.1787/533803487518
Statistical Annex
609
610
Statistical Annex
Table 19 - School Enrolment

Primary School, 2004/05 Secondary School, 2004/05
Gross enrolment ratio Net enrolment ratio Pupil/ Gross enrolment ratio Pupil/
teacher teacher
Total Male Female Total Male Female ratio Total Male Female ratio
Algeria 111.7 116.0 107.0 96.7 97.8 95.4 27.0 81.0 78.0 84.0 21.0
Angola ... ... ... ... ... ... ... ... ... ... ...

Benin 99.0 111.0 86.0 82.6 92.5 72.4 52.0 26.0 36.0 17.0 ...
Botswana 105.0 105.0 104.0 82.1 80.9 83.3 26.0 75.0 73.0 77.0 14.0
Burkina Faso 53.0 59.0 47.0 40.5 45.6 35.3 49.0 12.0 14.0 10.0 31.0
Burundi 80.0 87.0 73.0 57.0 60.2 53.8 51.0 12.0 14.0 10.0 19.0
Cameroon 117.0 126.0 107.0 ... ... ... 54.0 44.0 51.0 36.0 33.0
Cape Verde 111.0 113.0 108.0 91.8 92.2 91.4 27.0 66.0 63.0 69.0 23.0
Central African Republic 56.0 67.0 44.0 ... ... ... ... ... ... ... ...
Chad 80.0 97.0 63.0 ... ... ... 69.0 16.0 23.0 8.0 34.0
Comoros 85.0 91.0 80.0 ... ... ... 35.0 35.0 40.0 30.0 14.0
Congo 89.0 92.0 85.0 ... ... ... 83.0 39.0 42.0 35.0 34.0
Congo, Dem. Rep. ... ... ... ... ... ... ... ... ... ... ...
Côte d’Ivoire ... ... ... ... ... ... ... ... ... ... ...
Djibouti 39.0 44.0 35.0 32.2 35.9 28.5 35.0 22.0 25.0 18.0 ...
Egypt 101.0 103.0 98.0 95.4 96.7 94.0 22.0 87.0 90.0 84.0 17.0
Equatorial Guinea ... ... ... ... ... ... ... ... ... ... ...
Eritrea 66.0 74.0 59.0 47.8 51.7 43.8 48.0 29.0 38.0 21.0 51.0
Ethiopia 77.0 85.0 69.0 46.4 49.2 43.6 72.0 28.0 34.0 21.0 54.0
Gabon 130.0 130.0 129.0 ... ... ... 36.0 ... ... ... ...
Gambia 81.0 79.0 84.0 75.2 73.1 77.4 37.0 47.0 51.0 43.0 42.0
Ghana 81.0 84.0 79.0 57.9 57.7 58.1 33.0 42.0 45.0 38.0 19.0
Guinea 79.0 87.0 71.0 63.8 69.0 58.2 45.0 26.0 34.0 17.0 33.0
Guinea Bissau ... ... ... ... ... ... ... ... ... ... ...
Kenya 111.0 114.0 108.0 76.4 76.4 76.5 40.0 48.0 50.0 46.0 32.0
Lesotho 131.0 131.0 131.0 85.9 83.4 88.5 44.0 36.0 32.0 41.0 26.0
Liberia ... ... ... ... ... ... ... ... ... ... ...
Libya ... ... ... ... ... ... ... ... ... ... ...
Madagascar 134.0 136.0 131.0 88.8 88.8 88.7 52.0 ... ... ... ...
© AfDB/OECD 2007
Table 19 - School Enrolment (cont.)
Primary School, 2004/05 Secondary School, 2004/05
Gross enrolment ratio Net enrolment ratio Pupil/ Gross enrolment ratio Pupil/
teacher teacher
Total Male Female Total Male Female ratio Total Male Female ratio
© AfDB/OECD 2007
Malawi 125.0 123.0 126.0 95.3 93.1 97.6 70.0 29.0 32.0 26.0 ...
Mali 64.0 71.0 56.0 46.5 50.1 42.7 52.0 22.0 28.0 17.0 ...
Mauritania 94.0 95.0 93.0 74.3 74.7 73.9 41.0 20.0 22.0 18.0 28.0
Mauritius 103.0 103.0 103.0 95.1 94.2 96.1 23.0 85.0 86.0 85.0 17.0
Morocco 106.0 111.0 100.0 86.1 88.7 83.4 28.0 48.0 52.0 43.0 19.0
Mozambique 95.0 104.0 86.0 71.0 74.8 67.3 65.0 11.0 13.0 9.0 ...
Namibia ... ... ... ... ... ... ... ... ... ... ...
Niger 45.0 52.0 37.0 39.2 45.7 32.4 44.0 8.0 9.0 6.0 31.0
Nigeria 99.0 107.0 91.0 60.1 63.5 56.5 36.0 35.0 38.0 31.0 ...
Rwanda 119.0 118.0 120.0 73.2 71.5 74.8 62.0 14.0 15.0 14.0 26.0
São Tomé and Principe 133.0 134.0 132.0 98.2 98.5 98.0 32.0 40.0 39.0 41.0 ...
Senegal 76.0 78.0 74.0 66.1 67.8 64.5 43.0 19.0 22.0 16.0 26.0
Seychelles 110.0 109.0 110.0 96.4 96.0 96.9 14.0 102.0 98.0 106.0 14.0
Sierra Leone 145.0 169.0 122.0 ... ... ... 67.0 14.0 14.0 14.0 ...
Somalia ... ... ... ... ... ... ... ... ... ... ...
South Africa ... ... ... ... ... ... ... ... ... ... ...
Sudan 60.0 64.0 56.0 ... ... ... 29.0 33.0 34.0 32.0 25.0
Swaziland ... ... ... ... ... ... ... ... ... ... ...
Tanzania 101.0 103.0 99.0 85.9 86.8 85.1 56.0 ... ... ... ...
Togo 101.0 110.0 92.0 78.8 85.3 72.3 44.0 39.0 52.0 26.0 34.0
Tunisia 110.0 112.0 108.0 97.4 97.2 97.6 21.0 81.0 ... ... 18.0
Uganda 125.0 126.0 125.0 ... ... ... 50.0 19.0 21.0 17.0 19.0
Zambia 99.0 101.0 97.0 79.8 79.8 79.9 49.0 26.0 29.0 23.0 34.0
Zimbabwe ... ... ... ... ... ... ... ... ... ... ...
Africa 95.9 103.7 90.4 71.1 73.2 68.8 43.8 40.8 40.1 36.5 ...

Sources: ADB Statistics Department ; UNESCO Institute for Statistics (UIS) Database, March 2007; various domestic authorities.
http://dx.doi.org/10.1787/021613337607
Statistical Annex
611
612
Statistical Annex
Table 20 - Employment and Remittances

Unemployment rate Participation Inactivity rate Workers’ remittances ($ million)
rate (>15) (>15)
Year 2005 2005 2000 2001 2002 2003 2004
Total Men Women Total Men Women
Algeria 2004 20 20 21 58 42 20 64 790 670 1 070 1 750 2 460

Angola … … … … 82 18 9 26 ... ... ... ... ...

Benin … … … … 70 30 14 46 87 84 76 55 55
Botswana 2001 19 16 22 56 44 33 55 26 26 27 39 39
Burkina Faso 1994 3 … … 84 17 11 22 67 50 50 50 50
Burundi 1990 1 1 0 92 8 7 8 ... ... ... ... ...
Cameroon 2001 8 8 7 66 34 20 48 11 11 11 11 11
Cape Verde … … … … 54 46 24 66 87 81 85 92 92
Central African Republic … … … … 79 21 11 30 ... ... ... ... ...
Chad 1993 1 1 0 71 29 23 34 ... ... ... ... ...
Comoros … … … … 72 28 13 42 12 12 12 12 12
Congo … … … … 71 29 13 44 10 1 1 1 1
Congo, Dem. Rep. … … … … 75 24 10 39 ... ... ... ... ...
Côte d’Ivoire … … … … 64 36 12 61 119 116 120 142 148
Djibouti … … … … ... ... ... ... ...
Egypt 2003 11 7 23 47 54 27 80 2 852 2 911 2 893 2 961 3 341
Equatorial Guinea … … … … 70 30 10 50 ... ... ... ... ...
Eritrea 1984 17 15 19 74 27 10 42 3 000 ... ... ... ...
Ethiopia 2004 23 16 31 80 20 11 29 53 18 33 47 134
Gabon 1993 18 19 16 72 28 18 39 6 5 3 6 6
Gambia … … … … 72 28 14 41 14 7 7 8 8
Ghana 2000 8 8 9 73 27 25 30 32 46 44 65 82
Guinea 1994 3 5 2 83 17 13 21 1 9 15 111 42
Guinea Bissau … … … … 76 24 8 39 2 10 18 23 23
Kenya 1994 21 13 28 79 21 11 31 538 517 395 494 494
Lesotho 1997 39 31 47 58 43 28 54 252 209 194 288 355
Liberia … … … … 69 31 17 46 ... ... ... ... ...
Libya … … … … 57 43 20 68 9 10 7 8 10
Madagascar 2002 5 4 6 82 18 14 21 11 11 17 16 16
© AfDB/OECD 2007
Table 20 - Employment and Remittances (cont.)
Unemployment rate Participation Inactivity rate Workers’ remittances ($ million)
rate (>15) (>15)
Year 2005 2005 2000 2001 2002 2003 2004
Total Men Women Total Men Women
© AfDB/OECD 2007
Malawi 1998 1 1 1 87 13 10 15 1 1 1 1 1
Mali 2004 9 7 11 78 22 16 28 73 88 138 154 154
Mauritania … … … … 69 31 16 46 2 2 2 2 2
Mauritius 2004 9 6 14 61 39 21 57 177 215 215 215 215
Morocco 2003 12 12 13 54 47 19 73 2 161 3 261 2 877 3 614 4 221
Mozambique … … … … 84 16 17 16 37 42 53 70 58
Namibia 2001 31 27 36 54 46 37 53 9 9 7 12 16
Niger … … … … 83 17 5 29 14 22 19 26 26
Nigeria 1995 17 18 15 65 35 15 55 1 392 1 167 1 209 1 063 2 273
Rwanda 1996 1 1 0 82 18 16 20 7 8 7 9 10
São Tomé and Principe 2000 14 13 18 52 49 26 70 0 1 1 1 1
Senegal … … … … 69 31 18 44 233 305 344 511 511
Seychelles … 35 28 41 … … 2 1 1 1
Sierra Leone … … … … 75 25 6 44 7 7 22 26 25
Somalia … … … … … ... ... ... ... ...
South Africa 2004 27 24 32 62 38 21 54 344 297 288 435 523
Sudan … … 48 52 28 76 641 740 978 1 224 1 403
Swaziland 1997 25 20 26 51 50 28 69 74 74 62 88 89
Tanzania 2001 5 4 6 88 12 10 14 8 16 12 9 11
Togo … … … … 70 30 10 50 34 69 104 148 148
Tunisia 2003 15 … … 52 48 25 71 796 927 1 071 1 250 1 432
Uganda 2003 3 .20 3 4 83 17 14 20 238 338 416 285 347
Zambia 1998 12 13 12 78 22 9 34 ... ... ... ... ...
Zimbabwe 2002 8 10 6 74 26 16 36 ... ... ... ... ...
Africa 11 336 12 394 12 906 15 323 18 845
Note: See note on methodology.

Source: Employment: ILO, KILM database.
http://dx.doi.org/10.1787/574003408116

Workers’ remittances: World Bank, Global Development Finance 2006.
Statistical Annex
613
614
Statistical Annex
Table 21 - Corruption Perception Index

2000 2001 2002 2003 2004 2005 2006
Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank
/ 90 / 91 / 102 / 133 / 145 / 158 / 163
Algeria … … … … … … 2.6 88 2.7 97 2.8 97 3.1 84

Angola 1.7 85 … … 1.7 98 1.8 124 2 133 2 151 2.2 142
Benin … … … … … … … … 3.2 77 2.9 88 2.5 121

Botswana 6 26 6 26 6.4 24 5.7 30 6 31 5.9 32 5.6 37
Burkina Faso 3 65 … … … … … … … … 3.4 70 3.2 79
Burundi … … … … … … … … … … 2.3 130 2.4 130
Cameroon 2 84 2 84 2.2 89 1.8 124 2.1 129 2.2 137 2.3 138
Cape Verde … … … … … … … … … … … … … …
Central African Republic … … … … … … … … … … … … 2.4 130
Chad … … … … … … … … 1.7 142 1.7 158 2 156
Comoros … … … … … … … … … … … … … …
Congo … … … … … … 2.2 113 2.3 114 2.3 130 2.2 142
Congo. Dem. Rep. … … … … … … … … 2 133 2.1 144 2 156
Côte d´Ivoire 2.7 71 2.4 77 2.7 71 2.1 118 2 133 1.9 152 2.1 151
Djibouti … … … … … … … … … … … … … …
Egypt 3.1 63 3.6 54 3.4 62 3.3 70 3.2 77 3.4 70 3.3 70
Equatorial Guinea … … … … … … … … … … 1.9 152 2.1 151
Eritrea … … … … … … … … 2.6 102 2.6 107 2.9 93
Ethiopia 3.2 60 … … 3.5 59 2.5 92 2.3 114 2.2 137 2.4 130
Gabon … … … … … … … … 3.3 74 2.9 88 3 90
Gambia … … … … … … 2.5 92 2.8 90 2.7 103 2.5 121
Ghana 3.5 52 3.4 59 3.9 50 3.3 70 3.6 64 3.5 65 3.3 70
Guinea … … … … … … … … … … … … 1.9 160
Guinea Bissau … … … … … … … … … … … … … …
Kenya 2.1 82 2 84 1.9 96 1.9 122 2.1 129 2.1 144 2.2 142
Lesotho … … … … … … … … … … 3.4 70 3.2 79
Liberia … … … … … … … … … … 2.2 137 … …
Libya … … … … … … 2.1 118 2.5 108 2.5 117 2.7 105
Madagascar … … … … 1.7 98 2.6 88 3.1 82 2.8 97 3.1 84
© AfDB/OECD 2007
Table 21 - Corruption Perception Index (cont.)
2000 2001 2002 2003 2004 2005 2006
Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank Index Country Rank
/ 90 / 91 / 102 / 133 / 145 / 158 / 163
Malawi 4.1 43 3.2 61 2.9 68 2.8 83 2.8 90 2.8 97 2.7 105
© AfDB/OECD 2007
Mali … … … … … … 3 78 3.2 77 2.9 88 2.8 99
Mauritania … … … … … … … … … … … … 3.1 84
Mauritius 4.7 37 4.5 40 4.5 40 4.4 48 4.1 54 4.2 51 5.1 42
Morocco 4.7 37 … … 3.7 52 3.3 70 3.2 77 3.2 78 3.2 79
Mozambique 2.2 81 … … … … 2.7 86 2.8 90 2.8 97 2.8 99
Namibia 5.4 30 5.4 30 5.7 28 4.7 41 4.1 54 4.3 47 4.1 55
Niger … … … … … … … … 2.2 122 2.4 126 2.3 138
Nigeria 1.2 90 1 90 1.6 101 1.4 132 1.6 144 1.9 152 2.2 142
Rwanda … … … … … … … … … … 3.1 83 2.5 121
São Tomé and Principe … … … … … … … … … … … … … …
Senegal 3.5 52 2.9 65 3.1 66 3.2 76 3 85 3.2 78 3.3 70
Seychelles … … … … … … … … 4.4 48 4 55 3.6 63
Sierra Leone … … … … … … 2.2 113 2.3 114 2.4 126 2.2 142
Somalia … … … … … … … … … … 2.1 144 … …
South Africa 5 34 4.8 38 4.8 36 4.4 48 4.6 44 4.5 46 4.6 51
Sudan … … … … … … 2.3 106 2.2 122 2.1 144 2 156
Swaziland … … … … … … … … … … 2.7 103 2.5 121
Tanzania 2.5 76 2.2 82 2.7 71 2.5 92 2.8 90 2.9 88 2.9 93
Togo … … … … … … … … … … … … 2.4 130
Tunisia 5.2 32 5.3 31 4.8 36 4.9 39 5 39 4.9 43 4.6 51
Uganda 2.3 80 1.9 88 2.1 93 2.2 113 2.6 102 2.5 117 2.7 105
Zambia 3.4 57 2.6 75 2.6 77 2.5 92 2.6 102 2.6 107 2.6 111
Zimbabwe 3 65 2.9 65 2.7 71 2.3 106 2.3 114 2.6 107 2.4 130

Source: Transparency International.
http://dx.doi.org/10.1787/203153668061
Statistical Annex
615
Statistical Annex
Table 22 - Political Troubles

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Algeria 121.4 124.2 126.6 141.6 120.3 142.5 64.8 14.5 61.4 23.4 0.6
Angola … … … … … … … … 54.6 2.9 2.0
Benin … … … … … … … … 2.7 0.0 1.0
Botswana 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Burkina Faso 0.0 3.2 1.1 5.6 9.5 2.5 2.5 0.1 4.1 0.8 2.0
Cameroon 23.7 54.7 1.3 1.5 2.2 1.0 0.6 0.8 2.0 3.3 3.4
Chad 4.4 5.6 2.2 20.2 26.7 16.7 10.5 2.9 3.8 11.2 38.5
Congo … … … … … … … … 2.0 1.9 1.0
Congo, Dem. Rep. … … … … … … … … 21.7 21.9 18.9
Côte d'Ivoire 16.4 3.8 3.4 21.7 28.1 2.9 13.7 18.8 25.2 20.6 6.8
Egypt 22.9 43.6 0.0 1.0 7.8 7.2 2.0 5.4 8.5 13.7 0.0
Ethiopia 48.5 12.2 1.6 24.8 5.7 8.4 42.6 15.2 25.9 13.2 2.4
Gabon 10.0 1.0 2.5 0.9 0.0 0.0 1.5 0.0 0.5 6.6 0.0
Ghana 4.9 0.0 0.3 4.5 1.9 3.8 3.8 1.1 1.9 0.0 5.7
Kenya 14.8 25.5 34.1 0.0 0.0 11.6 1.9 6.8 4.5 12.4 4.8
Madagascar … … … … … … … … 6.7 8.8 1.9
Mali 3.4 13.7 1.2 8.8 0.0 0.0 0.0 0.6 0.6 2.5 1.0
Mauritius 0.0 0.0 0.0 5.2 0.0 0.0 0.0 0.0 1.9 1.9 5.4
Malawi … … … … … … … … … 5.7 0.0
Morocco 12.2 1.6 2.2 0.5 0.5 0.0 0.0 0.0 3.5 2.0 0.0
Mozambique 37.7 0.0 0.0 2.7 6.8 0.0 0.0 4.5 3.8 1.0 0.0
Namibia 3.5 0.0 0.0 7.6 3.8 0.0 0.0 0.0 0.0 0.0 1.2
Niger … … … … … … … … 5.5 3.5 21.5
Nigeria 30.2 51.3 10.2 47.1 29.2 39.7 19.4 10.4 31.6 4.0 32.4
Rwanda … … … … … … … … 0.0 0.0 0.5
616 Senegal 0.3 19.6 2.7 5.6 5.7 5.9 7.7 6.7 9.1 4.7 4.3
South Africa 85.0 40.8 20.3 38.8 18.9 2.2 3.3 1.2 11.3 3.1 9.4
Tanzania 4.7 1.9 0.9 0.0 0.0 6.0 0.0 0.5 0.3 5.3 0.0
Tunisia 0.0 0.0 0.5 2.5 0.5 0.0 2.9 2.3 0.0 2.9 0.0
Uganda 81.3 15.3 10.5 9.6 0.0 23.9 14.3 17.2 41.1 8.8 7.6
Zambia 4.8 4.6 4.9 3.6 0.6 17.6 1.1 5.7 2.0 2.0 2.7
Zimbabwe 9.6 9.7 11.3 5.4 16.8 12.6 16.5 8.8 3.4 4.5 4.1
Source: Authors' calculations based on Marchés Tropicaux et Méditerranéens. http://dx.doi.org/10.1787/680402624746

Statistical Annex
Table 23 - Softening of the Regime

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Algeria 1.3 3.6 0.8 1.9 0.7 0.0 3.0 2.2 3.8 1.9 1.1
Angola … … … … … … … … 1.2 0.7 1.9
Benin … … … … … … … … 0.9 0.2 0.6
Botswana 0.0 0.0 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Burkina Faso 0.4 0.4 0.0 0.0 1.1 0.0 0.7 0.1 1.1 0.0 0.0
Cameroon 0.7 2.0 0.8 0.0 0.1 0.8 0.0 0.7 2.4 1.0 0.6
Chad 4.5 4.0 0.0 1.8 0.5 1.1 2.7 3.2 0.2 0.4 0.4
Congo … … … … … … … … 0.8 1.1 0.1
Congo, Dem. Rep. … … … … … … … … 0.4 1.7 1.3
Côte d'Ivoire 1.5 2.1 1.0 1.1 2.6 3.9 1.8 6.9 6.0 3.6 2.0
Egypt 0.1 0.0 0.0 1.4 1.9 0.2 0.6 2.6 2.5 1.8 1.7
Ethiopia 0.1 0.1 0.8 0.0 0.1 1.6 0.0 0.0 0.4 1.9 0.7
Gabon 0.0 0.5 0.5 0.0 0.1 0.0 1.1 0.4 0.8 0.8 0.0
Ghana 0.9 0.1 0.0 0.0 1.1 0.2 0.0 0.0 0.4 0.0 0.2
Kenya 0.9 0.7 0.6 0.0 0.0 1.1 0.0 2.7 0.7 0.0 0.4
Madagascar … … … … … … … … 2.9 0.2 0.0
Mali 1.4 2.3 0.9 1.7 1.4 0.1 1.3 0.0 0.2 0.0 0.0
Mauritius 0.0 0.1 0.0 0.0 0.0 0.0 0.0 1.0 0.1 0.1 1.5
Malawi … … … … … … … … … 0.0 2.1
Morocco 0.9 0.6 0.6 0.0 2.1 0.0 0.9 1.0 3.0 1.2 0.0
Mozambique 0.1 0.0 0.0 0.0 0.7 1.5 0.7 0.1 0.1 0.0 0.0
Namibia 0.0 0.4 0.0 0.0 0.0 1.1 0.0 0.5 0.0 0.2 1.4
Niger … … … … … … … … 0.0 1.2 0.6
Nigeria 1.1 1.8 6.6 3.4 0.3 0.0 0.9 0.6 1.2 0.3 1.6
Rwanda … … … … … … … … 0.6 1.5 0.1
Senegal 0.5 0.7 0.0 2.4 1.1 1.6 0.1 0.0 2.6 1.2 0.7 617
South Africa 3.1 2.3 0.8 2.0 0.9 2.2 0.9 0.5 0.6 0.8 0.2
Tanzania 0.2 0.1 0.1 1.6 0.0 1.6 0.7 0.0 0.5 0.0 0.0
Tunisia 1.4 0.7 0.1 2.8 0.7 1.8 3.0 0.7 0.0 1.1 0.4
Uganda 0.0 0.4 0.4 0.6 0.7 0.1 0.4 0.9 0.6 0.6 2.2
Zambia 1.4 0.0 1.7 0.7 0.0 1.2 1.3 1.6 0.5 0.2 0.5
Zimbabwe 0.1 0.1 0.0 0.2 1.2 0.6 1.5 2.5 0.5 0.1 0.7
Source: Authors' calculations based on Marchés Tropicaux et Méditerranéens.
http://dx.doi.org/10.1787/104360166735

Statistical Annex
Table 24 - Hardening of the Regime

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Algeria 11.9 6.5 4.3 2.5 0.3 8.1 15.0 4.5 8.9 0.0 1.8
Angola … … … … … … … … 5.7 0.3 1.3
Benin … … … … … … … … 1.2 0.3 1.7
Botswana 0.3 0.5 0.0 0.6 0.0 0.0 0.0 0.0 1.0 0.3 0.0
Burkina Faso 0.8 1.9 0.6 4.5 1.6 1.1 2.7 2.4 2.8 0.5 0.3
Cameroon 7.4 5.9 1.9 1.6 1.0 3.3 0.9 2.2 2.5 0.0 2.5
Chad 2.9 1.0 1.4 0.0 1.1 2.6 1.7 0.0 0.9 6.9 17.0
Congo … … … … … … … … 1.4 1.0 0.5
Congo, Dem. Rep. … … … … … … … … 4.9 10.4 14.7
Côte d'Ivoire 2.9 2.5 0.7 10.2 7.8 1.4 3.2 7.2 9.6 7.2 5.6
Egypt 9.4 6.8 5.5 2.0 7.7 3.9 11.5 4.8 4.0 3.2 1.4
Ethiopia 7.5 3.9 2.4 0.0 0.7 3.6 8.4 1.2 1.3 12.4 2.7
Gabon 1.0 5.1 0.7 2.1 0.4 0.0 0.5 1.3 3.6 7.8 0.0
Ghana 2.2 0.8 2.5 2.4 0.0 0.8 1.3 0.0 0.4 0.0 3.6
Kenya 3.9 11.0 3.6 0.0 0.0 0.7 1.2 2.0 2.3 2.6 1.7
Madagascar … … … … … … … … 2.8 1.1 0.8
Mali 0.4 5.1 0.0 0.4 1.2 1.1 0.3 1.0 0.3 0.0 0.0
Mauritius 0.3 0.0 0.0 0.4 0.0 0.0 0.0 2.2 0.4 0.4 8.2
Malawi … … … … … … … … … 3.4 0.8
Morocco 5.0 3.7 1.4 1.2 3.4 2.9 2.5 3.7 5.6 1.9 0.0
Mozambique 0.3 0.9 2.3 1.1 3.7 1.2 0.0 0.4 1.6 0.0 0.3
Namibia 0.0 0.3 0.0 1.2 1.6 0.3 0.3 0.8 0.3 0.0 1.6
Niger … … … … … … … … 1.6 3.1 4.0
Nigeria 125.5 9.1 5.8 4.2 4.5 2.8 2.4 3.5 12.4 2.6 21.4
Rwanda … … … … … … … … 4.0 0.0 0.0
618 Senegal 1.7 3.3 2.7 0.3 0.0 1.7 1.1 1.4 0.9 2.6 2.8
South Africa 18.6 14.3 6.1 4.5 1.9 1.2 1.8 1.7 4.0 4.5 2.2
Tanzania 1.3 0.4 0.5 0.0 0.3 0.4 0.0 0.5 0.0 1.5 0.0
Tunisia 3.9 1.5 1.5 2.4 1.4 3.3 2.9 1.6 6.4 2.7 0.5
Uganda 3.1 0.0 0.7 0.9 0.0 5.8 1.3 3.8 12.3 2.9 6.5
Zambia 5.5 8.5 3.9 3.0 1.1 4.7 5.2 1.5 2.4 1.2 1.4
Zimbabwe 4.0 3.7 7.7 5.1 4.8 12.5 17.5 15.5 16.3 13.4 10.1
Source: Authors' calculations based on Marchés Tropicaux et Méditerranéens. http://dx.doi.org/10.1787/788830603871

2007
African
Economic
The African Economic Outlook combines the expertise of the OECD – which produces the OECD Economic
Outlook twice a year – with the knowledge of the African Development Bank on African economies.
The objective is to review annually the recent economic situation and the short-term likely evolutions of
Outlook
selected African countries. The Outlook is drawn from a country-by-country analysis based on a unique
analytical design. This common framework includes a forecasting exercise for the current and two following
years using a simple macroeconomic model, together with an analysis of the social and political context.
It also contains a comparative synthesis of African country prospects, placing the evolution of African
economies in the world economic context. This edition includes a special focus on water and sanitation
issues. A statistical appendix completes the volume.
This volume will be of significant interest to decision makers in African and OECD countries, both in the public
and private sectors, such as aid agencies, investors, and government officials of aid-recipient countries.
The African Economic Outlook is a joint project of the African Development Bank and the OECD
Development Centre, with generous support from the European Commission.
This publication provides dynamic links (StatLinks) for graphs and tables. These StatLinks direct the user
to a web page where the corresponding data are available in Excel® format.
COUNTRIES COVERED
• ALGERIA • ANGOLA • BENIN • BOTSWANA • BURKINA FASO • CAMEROON • CHAD • CONGO • CÔTE D’IVOIRE
• DEMOCRATIC REPUBLIC OF CONGO • EGYPT • ETHIOPIA • GABON • GHANA • KENYA • MADAGASCAR
• MALAWI • MALI • MAURITIUS • MOROCCO • MOZAMBIQUE • NAMIBIA • NIGER • NIGERIA • RWANDA
• SENEGAL • SOUTH AFRICA • TANZANIA • TUNISIA • UGANDA • ZAMBIA
The full text of this book is available on line via these links:

www.sourceoecd.org/development/9789264025103
www.sourceoecd.org/emergingeconomies/9789264025103
Those with access to all OECD books on line should use this link:
www.sourceoecd.org/9789264025103
SourceOECD is the OECD's online library of books, periodicals and statistical databases. For more information about
this award-winning service and free trials ask your librarian, or write to us at SourceOECD@oecd.org.
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This work is published under the auspices of the OECD

Development Centre. The Centre promotes comparative
development analysis and policy dialogue, as described at: 2006/2007
www.oecd.org/dev
ISBN 978-92-64-02510-3
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African Economic Outlook

African Economic Outlook

This work is published under the auspices of the OECD

© OECD, African Development Bank (2007)

African Economic Outlook © AfDB/OECD 2007

© AfDB/OECD 2007 African Economic Outlook

African Economic Outlook © AfDB/OECD 2007

African Economic Outlook

Part One: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Part Two: Country Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Part Three: Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

© AfDB/OECD 2007 African Economic Outlook

African Economic Outlook © AfDB/OECD 2007

Donald Kaberuka Louka T. Katseli

© AfDB/OECD 2007 African Economic Outlook

© AfDB/OECD 2007 African Economic Outlook

African Economic Outlook © AfDB/OECD 2007

Source: OECD (2006), OECD Economic Outlook, December.

1. Source: OECD (2006), OECD Economic Outlook, December.

© AfDB/OECD 2007 African Economic Outlook

African Economic Outlook © AfDB/OECD 2007

Figure 3 - Prices of Oil and Metals (base 100 in January 2001)

—— Petroleum —— Gold ----- Copper ----- Aluminium

Source: World Bank.

© AfDB/OECD 2007 African Economic Outlook

volatile and began to decline in the second-half of Agricultural Products

Figure 4 - Prices of Tropical Beverages (base 100 in January 2001)

—— Cocoa ----- Tea —— Coffee (arabica) ----- Coffee (robusta)

Source: World Bank.

African Economic Outlook © AfDB/OECD 2007

Figure 5 - Price of Cotton (base 100 in January 2001)

2. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.

© AfDB/OECD 2007 African Economic Outlook

3. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.

African Economic Outlook © AfDB/OECD 2007

Total ODA (right scale)

% of GNI ODA ($ billion) 2004

Source: OECD/DAC statistics (2007)

© AfDB/OECD 2007 African Economic Outlook

Box 1 - Public Debt Management and Bond Markets in Africa8

6. Based on region-allocable ODA only.

African Economic Outlook © AfDB/OECD 2007

© AfDB/OECD 2007 African Economic Outlook

■ Other ODA ■ Bilateral debt forgiveness ■ Emergency aid

Source: OECD/DAC statistics (2007)

African Economic Outlook © AfDB/OECD 2007

Box 2 - Dealing with Complexity: Health Financing in Ghana

9. OECD (2007) , DAC, 2006 Development Co-operation Report, Paris.

© AfDB/OECD 2007 African Economic Outlook

Box 3 - Improving the Effectiveness of Aid for Trade in Africa

26 $ million Share of Global TRTA (%) Global TRTA

Trade Policy & Regulations 361 39.2 923

$ million Share of Total Infrastructure (%) Total Infrastructure

Infrastructure 3 810 31.2 12 197

Source: WTO/OECD Trade Capacity Building Database.

African Economic Outlook © AfDB/OECD 2007

Box 4 - The African Partnership Forum

APF reports may be accessed at www.africapartnershipforum.org

© AfDB/OECD 2007 African Economic Outlook

African Economic Outlook © AfDB/OECD 2007

Box 5 - Private Equity in Africa

© AfDB/OECD 2007 African Economic Outlook

Table 1 - Average Growth Rates of African Regions (annual % change)