Burkina Faso: Burkina faso Economy Profile

In 2014, the political crisis, along with lower gold and cotton prices and the Ebola epidemic in West Africa (which led to the cancellation of many international events), had a significant effect on Burkina Faso’s economy. Growth still reached 5.0% (6.6% in 2013) and the outlook for 2015 is positive (5.5%), mainly due to continued infrastructure investment. Thanks to a good 2014 harvest and lower oil prices, which could reduce the cost of imports, inflation should remain within the 3% limit set by the West African Economic and Monetary Union (WAEMU) in 2015.

The economy is vulnerable to changes in gold, cotton and oil prices, to an unpredictable climate and to the direction of political transition in 2015. The high level of poverty in a young population and regional disparities are still major concerns. Despite good progress in education, the fight against HIV/AIDS and better access to clean water, not all the Millennium Development Goals (MDG) will be reached in 2015.

The country has gradually developed a structure where the capital, Ouagadougou, has most of the modern economic infrastructure, while the countryside, where 77.3% of the population live, has little. The main development challenge is to implement a policy of growth centres based on the potential of each region, and provide the regions that have strong economic potential with modern infrastructure, such as roads, energy, water and information technology, that will attract private investment.

• Despite the political crisis, lower gold and cotton prices and the Ebola epidemic, strong economic growth is expected in 2015 (5.5%) and 2016 (7%).
• With a high rate of poverty, the government’s main challenge in managing public finances is still to use the country’s mining revenue to create more inclusive growth.
• The government is counting on creating regional growth centres to improve land development, currently focused on the capital.

Recent Economic Developments and Prospects

In 2009, the economy was still feeling the effects of the cotton, energy and food crises of the preceding years, and the torrential rains of September 2009 made matters worse. The economy nonetheless recorded positive growth, although the growth rate slowed from 5.2% in 2008 to 3%. This growth was driven by services (which contributed 1.3 percentage points to real GDP growth) and, to a lesser extent, by the primary and secondary sectors (0.9 and 0.7 percentage points respectively).

The economy is dominated by the primary sector and services. The primary sector (agriculture, livestock, forestry and fisheries) accounts for no less than 34.5% of GDP. It is followed by trade, transport and communications (17.1%). Manufacturing is not highly developed (12% of GDP), while the mining sector, although it has grown very strongly in the last two years, still accounts for only a small share of GDP (2.8%).

The primary sector slowed in 2009 as the cereals harvest fell by 10%. The performance of cereals in 2008 had been very strong, with a record-breaking rice crop (up 183%) driving a 41% surge in output, thanks to good weather conditions and a proactive policy of assistance to producers (distribution of agricultural inputs and equipment). Although incentive measures for smallholders were continued in 2009, the unfavourable distribution of rainfall and the floods of September 2009 reduced agricultural output. The producer price for cotton fell from XOF 165 CFA Franc BCEAO (XOF) to XOF 160 per kilogram (kg) between 2008 and 2009, reflecting the drop in world prices. The economic climate prevented a recovery in cotton production (449.5 tonnes in 2009, down from 457.4 tonnes in 2008). The government took a number of support measures aimed at introducing and encouraging the adoption of genetically modified cotton in order to increase yields. Other measures were concerned with settling of producers’ domestic debt from previous harvests and with input subsidies for producers. The outlook for the primary sector in 2010-11 is good, with projected annual growth of 7% driven by food crops and livestock breeding.

Industry grew by 5.8% in 2009, boosted by investment flows and an improved business climate. Although the cotton ginning segment contracted by 25%, as a result of the crisis in the cotton sector, mining and construction grew strongly, contributing 4.2 and 1.1 percentage points respectively to sector growth. The mining sector benefited from the rising price of gold, which was in demand as a safe haven in a financial crisis. In 2010 and 2011, the secondary sector should grow by 10% each year, driven by mining (projected annual growth of 22%) and construction (which should expand by an average of 10% per year).

The easing of political tension in neighbouring Côte d’Ivoire helped to boost the growth of the tertiary sector, which accelerated from 1.5% in 2008 to 2.5% in 2009. Trade and transport expanded respectively by 6.1% and 12.7% during the year. The financial sector, however, suffered from the effects of the global crisis. The cautious attitude of banks towards lending to the private sector led to a 2.3% drop in banking activity in 2009, as against a 5% rise the previous year. The outlook for the tertiary sector in 2010-11 is favourable, with projected growth averaging 11% per year owing to buoyant growth in transport (up 30% a year) and a recovery in the financial sector.

Consumption contributed 3.1 percentage points to real GDP growth in 2009. Private consumption accounted for 69.6% of total demand in 2009, owing to the easing of inflationary pressures in the fourth quarter. The growth contribution of external demand rose to 1.4 percentage points of GDP (0.5 points for imports and 0.9 points for exports).

The growth contribution of investment turned negative in 2009 (-1.5 percentage points of GDP), as private investment contracted (-1.8 percentage points) due to the poor economic climate. In 2010 and 2011, investment should contribute 2.2 and 2.7 percentage points respectively to GDP growth, as a result of the economic recovery and rehabilitation of infrastructure damaged in the flooding of September 2009.

Macroeconomic Policy

Overall, tax revenue fell slightly as a percentage of GDP in 2009 to 11.5% (12.1% in 2008). This level of tax mobilisation remains low compared with the WAEMU standard, set at a minimum of 17% of GDP. Despite the introduction of a new fiscal policy, the level of resource mobilisation is projected to remain at 11.4% of GDP in both 2010 and 2011.

Total expenditure and net lending accounted for 21.4% of GDP in 2009, compared with 21.6% in 2008. Spending should increase slightly in 2010 and 2011, reaching 22% and 22.5% of GDP respectively. The measures taken in 2009 to cope with the financial crisis, support domestic demand, strengthen social safety nets, meet emergency humanitarian needs, assist flood victims and rehabilitate infrastructure that had been destroyed or heavily damaged in the flooding weighed heavily on the central government budget. The overall deficit, grants included, is estimated at 5.6% of GDP in 2009, up from 4.4% in 2008. It was covered by general budget supports (XOF 150 billion), bond issues (XOF 80 billion) and drawings on the Central Bank of West African States (BCEAO) and the International Monetary Fund (IMF). These measures increased the central government’s domestic debt and hence are liable to crowd out financing for the private sector. However, the deficit should be reined in during the next two years, falling back to 4.7% and 4.5% of GDP in 2010 and 2011 respectively.

Social expenditure (primarily on education and health) fell in 2009 to 24.9% of total expenditure, as against 25.4% in 2008. This decline was felt both in the health sector (6.7% of total expenditure, compared with 7.7% in 2008) and in education (9.5% of total expenditure, down from 10.5% in 2008).

The money supply amounted to XOF 988.4 billion in 2009, up 7.2% from XOF 912.6 billion in 2008. This expansion can be attributed to the 4.7% rise in domestic lending. Money supply is projected to increase further by 6% in 2010 and 11% in 2011.

Inflationary pressures eased in 2009 owing to the decline in international food prices. The WAEMU harmonised index of consumer prices, after a record rise of 10.7% in 2008, increased by only 2.8% in 2009 – an inflation rate lying within the WAEMU limit of 3%. Inflation is projected to remain below 3% in 2010 and 2011.

The improvement in the external balance should continue in the coming years. The trade deficit is projected at 6.6% and 5.8% of GDP respectively in 2010 and 2011.

In 2009, external debt accounted for 24.1% of GDP, up 4.5 percentage points over 2008, and for 91.2% of total public debt. External debt service amounted to 6.0% of exports of goods and services in 2009, compared with 6.1% in 2008.

The stock of external debt is estimated at XOF 936 billion in 2009, up from XOF 700 billion in 2006. It is projected at 120.6% of exports in 2010 and 111% in 2011. The total stock of debt should amount to 26.7% of GDP in 2010 and 28.2% in 2011.

Structural Issues

Despite this progress, private sector development is still hampered by the economy’s lack of competitiveness, which is due to high production costs. The disadvantages of Burkina Faso’s landlocked situation are compounded by the inadequacy of its infrastructure and public services. Improvements are needed in contract enforcement and investor protection, as well as cross-border trade, taxation and access to credit.

Where microfinance is concerned, the government adopted a new law on decentralised financial systems in 2009. This law aims to limit the risks entailed by the growth of the microfinance sector and to ensure secure transactions by introducing a single authorisation system. It also provides for the BCEAO’s participation in examination of applications for authorisation to operate, stronger prudential rules and the mandatory certification of accounts for decentralised financial systems over a certain size.

Five public enterprises are slated for privatisation. In July 2009, the state sold 51% of its shares in the vehicle inspection firm Centre de contrôle des véhicules automobiles to Société Burkina Contrôle for XOF 2.04 billion. However, little or no progress has been made on the privatisation of Sonabel, Sonabhy, the hotel operator Société d’exploitation hôtelière Silmandé and the mining parastatal Bureau des mines et de la géologie du Burkina. The programme to outsource management of the Ouagadougou and Bobo Dioulasso airports under an affermage contract and the construction of a new airport through a public-private partnership are both behind schedule.

General reform of governance continues to move slowly. An assessment of the reform was initiated in 2009, with a view to developing a new strategy based on efficiency and transparency. Efforts have also been made in the last two years to step up oversight and auditing, through the Higher Authority for State Supervision (Autorité supérieure de contrôle de l’État – ASCE) and the Audit Office (Cour des comptes), both of which issue public reports. It is now mandatory for all directors-general and managing directors of public authorities and state-owned enterprises to be recruited through a public call for applications, with detailed specifications of the post and selection criteria. In Transparency International’s 2009 corruption perceptions index, Burkina Faso moved up one place, from 80th to 79th, and is now ranked as the ninth least corrupt African country, just after Ghana.

On the decentralisation front in 2009, powers were devolved to municipal authorities in 11 areas of governance, including education, health, drinking water and sanitation. A number of problems remain, however, regarding capacity building for local elected officials and the actual transfer of funds. If decentralisation is to be effective, it must combine the development of local taxation with budget transfers from the central government to local and provincial authorities.

Despite the crisis, infrastructure development continued in 2009. A regulatory authority for the electric power sub-sector was established. The electrical interconnection project linking Bobo Dioulasso and Ouagadougou, via Côte d’Ivoire’s grid, was completed in December 2009. This improvement in the country’s supply of electric power is to be followed up by a major programme to develop an interconnected national grid, which will require connecting isolated towns to the grid and electrifying some 40 towns and villages. Burkina Faso nevertheless remains dependent on its main electricity suppliers, Côte d’Ivoire and Ghana, which are experiencing shortages that may lead to power cuts for Burkina Faso in 2010.

The current sector programme for transport and tourism covers the 2005-10 period. The road-building component continued in 2009 with the construction of the sections linking Bobo-Dioulasso and Diébougou to the Ghanaian border and the sections between the capital Ouagadougou and Kongoussi in the north and Pô in the south, as well as the road between Dori in the north-east and Téra in Niger. Interchanges were built and the Zaka commercial zone in Ouagadougou developed. In the roads programme there have been considerable delays to the renovation of the road from Koupéla to Bitou, the construction of the one from Koudougou to Dédougou and the start-up of the Millennium Challenge Account construction programme. The country’s road network remains congested and poorly maintained.

A national water supply and sanitation programme is being financed by several partners, including the African Development Bank (AfDB). The investments made under this programme should improve access to clean water in 2009 (the urban and rural access rates in 2008 were 75% and 56% respectively).

Legislation on the regulation of telecommunications networks and services was adopted in 2009. The country already has a legal and regulatory framework for facilitation of electronic transactions and the fight against cybercrime.

Environmental affairs in Burkina Faso are governed by a number of legislative instruments, including the environment code, the forestry code, the mining code, the reform law on water management, the law on pastoral herding and the national policy on security of rural land tenure. Revenue derived from the natural resource sector amounts to less than 1% of GDP. A number of donor-financed projects to improve natural resource management are in progress: the Forestry Management Project (Projet de gestion des ressources forestières), financed by the AfDB, and two projects funded by the World Bank, the Natural Resource Management Support Project (Projet d’appui à la gestion des ressources naturelles) and the National Land Management Programme (Programme national de gestion des terroirs). The legislation in force stipulates that environmental and social impact studies are mandatory for all development projects. A major remaining challenge is the country’s lack of strategies for managing liquid, solid and gaseous waste and rainwater.

Agricultural modernisation is a key component of the country’s development policy. In 2009, a law on rural land ownership was adopted, following a long participatory process that started with the adoption of the policy on security of land tenure in 2007. The law seeks to promote productive investment in agriculture and lay the foundations for its modernisation and integration into the market economy. However, the instruments implementing this new law have not yet been adopted. In 2009, a one-stop shop for land transactions was set up in order to cut the red tape involved in issuance of title deeds. The time required has been shortened, but the average cost of the procedure is still rather high at 13.2% of the value of the land, well above the sub-Saharan African average of 9.9%.

Measures were taken to stimulate agricultural output so as to help the country cope with the food crisis. For example, the authorities provided subsidised inputs (improved seeds and fertilisers) to growers. Owing to the floods of September 2009, however, cereal production fell by 10% with respect to 2008.

Public Resource Mobilisation

Tax revenue increased throughout the past decade, at a pace of 9.7% per year. This progress was expected, owing to the computerisation of revenue authorities and the strengthening of their enforcement capability, particularly as regards tax audits. In contrast, non-tax revenue (including grants) was highly erratic over the period: large increases were recorded in 2006 (448.4%) and 2009 (69.2%), owing respectively to implementation of the Multilateral Debt Relief Initiative (MDRI) and to the response to the cereals crisis and floods; while steep declines were observed in 2007 (-72.6%) and 2008 (-24.1%), reflecting the unpredictability of grant funding. Tax and non-tax revenue accounted respectively for about 60% and 40% of total revenue over the period. The volume of grants received is increasing as a result of the country’s efforts to consolidate its public finances.

Tax and customs obligations are defined by a number of legislative instruments: the tax code, the registration and stamp duty code, the customs code, the Budget Act, the Agrarian and Land Reorganisation law, and the law relating to the tax on occupation and use of public land (taxe de jouissance). The resulting complexity of the tax system and the large number of taxes are often criticised by the private sector. In the World Bank’s 2009 and 2010 Doing Business reports, Burkina Faso is ranked 144th out of 183 countries on the “paying taxes” indicator: tax compliance in 2010 requires no fewer than 46 separate payments and 270 hours spent in preparing and filing returns and paying taxes.

Over the past ten years, indirect taxes, including value added tax (VAT), have accounted for 54.02% of tax revenue (6.6% of GDP), followed by direct taxes (24.87% of tax revenue and 3% of GDP) and customs receipts (18.34% of tax revenue and 2.2% of GDP).

On average over the 2000-09 period, tax revenue amounted to 60% of total revenue and 12% of GDP. Business profits tax is set at 35% and the VAT rate at 18%. Tax rates on wages and salaries vary with the income bracket and number of dependent children, while those on property income are progressive by net income bracket, with a series of exemptions or breaks depending on the owner’s status.

The investment and mining codes also provide for a series of tax exemptions and incentives under three separate systems; these measures increase tax erosion with little visible effect on employment and investment. The agricultural sector, which employs nearly 80% of the population, is virtually untaxed.

In recent years, the main tax measures have been concerned with reorganising the respective collection powers of the various authorities concerned, as well as with the introduction of a special tax for the informal sector, increased indirect taxation through the introduction of VAT, taxpayer identification, computerisation and cracking down on tax evasion.

A tax policy reform is in the works. A bill submitted to the national assembly seeks to rationalise tax incentives and exemptions and to simplify and modernise tax legislation, notably by creating a single corporation tax. The reforms are also aimed at improving the management and yield of indirect taxes, through reform of VAT and increased taxation of the informal sector.

The government has always been the prime mover in tax policy design, although it has often received technical support from the IMF and other partners. The measures taken to increase tax compliance by business, investors and workers include computerisation of the tax and customs administrations, training for the officials who work in them and, most important, increased tax auditing. Business tax administration is centralised in the General Tax Directorate (DGI), which has a large enterprises division (DGE) and a medium-sized enterprises division (DME). Local and regional revenue collection is handled by the Treasury and General Tax Directorate, supplemented if necessary by staff recruited by local authorities.

The current budgetary and functional classification scheme does not lend itself to easy evaluation of the proportion of public expenditure devoted to tax mobilisation. This situation is further complicated by the multiplicity of tax collection bodies: the three main financial authorities (the tax and customs directorates and the Treasury), individual ministries’ tax offices and other institutions.

The main obstacles to the intensification of tax collection are as follows: the assessment-based nature of the tax system, the lack of tax compliance and the informal economy (agriculture, crafts, trade).

The tax base is growing steadily larger as a result of stepped-up auditing and tax census activities, as well as cross-checking between customs, social security and public procurement records. In 2009 alone, the number of taxpayers subject to the rules applying to large enterprises increased by 13.5%, those subject to the simplified declaration system by 25% and those subject to the informal sector contribution by 43.5%.

Despite its size (some 40% of GDP), the informal sector contributes very little to tax revenue because only 6% of informal businesses are registered. The government has introduced the “informal sector contribution”, a single unified tax for this sector, with different rates depending on the nature of the business. The government, having learned from the problems encountered in enforcing this tax, is reformulating it as part of the general reform of tax policy.

After the adoption of the tax policy reform bills tabled in the national assembly, the government plans to produce a handbook of tax procedures to make the new measures more accessible to the public. A week-long awareness campaign on tax compliance is also planned.

The losses arising from tax evasion, corruption and capital flight are difficult to quantify, owing to the lack of reliable statistics. The government has made a serious effort to address these problems in recent years. The following actions were taken in 2009: a review of the current situation concerning tax evasion and non-compliance, finalisation of the interconnection between the customs service and the inspection firm Cotecna, and stronger controls on the final destination of tax-exempt goods. The latter led to a supplementary tax assessment of XOF 199.5 million in 2009. Several bodies have been set up to fight fraud and corruption, the most visible of which is the ASCE, which is required to publish an annual report accessible to the general public. The annual report of the Audit Office (Cour des comptes) is also made public and is having a considerable impact on society. The combined effect of all these measures has been a decline in corruption, as attested by the annual reports of Transparency International.

The measures taken by government in 2009 have made Burkina Faso eligible for admission as a candidate country to the Extractive Industries Transparency Initiative (EITI). Tighter supervision of the mining sector has increased the tax take from the sector to XOF 8.5 billion.

Social Context and Human Resource Development

Poverty remains endemic, despite the country’s good economic performance and the improvement of social indicators. In 2008, 42.8% of the population was still living below the poverty line. The poverty situation is exacerbated by the difficulties of the cotton sector, which are hurting small growers, and by the fact that 80% of the population lives in rural areas. 
In the United Nations Development Programme’s (UNDP) 2009 Human Development Index, Burkina Faso ranked 177th out of 182 countries. Nonetheless, some social progress has been made. The gross school enrolment rate was 72.4% in 2008 (67.7% for girls), and the observed trends suggest that the target for 2009 – an enrolment rate of 82.5% (79% for girls) – may have been reached. The rate of attendance of health facilities was 49% in 2008 and may also have reached its target for 2009 (51%), thanks to subsidies for certain types of care for women and children.