Africa > West Africa > Togo > Togo Economy Profile

Togo: Togo Economy Profile

2015/10/06

TOGO CHILDREN

 

GDP grew by an estimated 5.5% in 2014, and is projected to grow by 5.7% in 2015 and 5.9% in 2016, thanks to investment in economic infrastructure and agricultural reforms. The new Scantogo-Mines industrial complex will begin large-scale limestone mining in 2015 to produce clinker and cement locally. With a production capacity of 5 000 tonnes of clinker a day, the project will put an end to the sector’s poor performance (-9.8% in 2014), with production increasing by 69.4% in 2015 and a further 46.3% in 2016. Nevertheless, overall and potential growth of more than 5% in the short and medium term could be hampered by overshadowing of the issues in the 2015 presidential elections by debate on whether the number of terms of office should be limited.

The World Bank report, Doing Business 2015, lists Togo as one of the 10 world economies that have most improved their business environment, having moved 15 places up the businessenvironments ranking to 149th in the world. The tax office (Office togolais des recettes) has introduced several reforms in its operations, including the obligation for officials to declare their assets; the possibility for taxpayers to lodge complaints using a Freephone number or by e-mail; and the obligation to pay tax through banks. The state is omnipresent throughout the electricity value chain, with state-owned enterprises enjoying heavily subsidised prices. These (XOF 148 [CFA Franc BCEAO]/kWh) are below cost but still too high to attract private investment. Since independence, Togo has never published a budget review law. Bills were proposed for 2007, 2010, 2011, 2012 and 2013, but have not yet been debated in parliament due to a shortage of the skills required for this kind of government control exercise. On 31 December 2013, Togo had 92 microfinance institutions (MFIs) with outstanding loans of XOF 117 billion. Some 43% of the Togolese population are MFI beneficiaries, compared with 16% for all countries in the West African Economic and Monetary Union (WAEMU).

The proportion of each region’s population living in urban areas increases with proximity to the Maritime region, where the capital of Lomé is located. The Savanes region has a 5% urban population, the Kara region 8%, the Centrale region 7%, the Plateaux region 12% and the Maritime region 68%. The vast majority of people living in poverty reside in rural areas (78.9%). In 2014, the Maritime region, which covers only 11% of the country, collected 98% of tax revenue, employed 82% of doctors and consumed 86% of the country’s electricity. Togo is the only WAEMU country that has not yet decentralised. Decentralisation will begin in earnest in 2016 and will be decisive in meeting the challenges of spatial inclusion.


Recent Economic Developments and Prospects

Agriculture, the focus of the economy, provided 1.4 percentage points of in general increase in 2011. Public investment and exports as well contributed. The phosphates industry, which is being restructured, did slightly better year-on-year. Cash crops were up 22.2% by volume, at 153 400 tonnes, compared with a rise of 20.9% the previous year. Cocoa production was down 40% but cotton recovered and increased 70.2% after falling 68.5% in 2010. Cotton was boosted by cheaper inputs and better confidence part farmers -- now on the board of the national cotton company, the Nouvelle société cotonnière du Togo (NSCT) – as part of government efforts to revive production.

Food crops increased 4.4% by volume in 2011 (to 4 392 tonnes), with amount of them doing well except for millet and sorghum due to late rains in the north and their gradual replacement by maize. Output of manioc (up 9.9%) and yams (+2.4%) grew fastest.

Traded goods expanded 3.6% in 2011, slightly down from 2010 because of dearer fuel and imported food. Domestic commerce declined 1.1%, while transport, storage and communications grew 4.6% and banks and insurance 3.7%. The tertiary sector provided 0.9 percentage points of GDP increase, thanks to a very strong contribution by the “other services” heading.

Budget execution was largely satisfactory. Tax revenue was additional than expected, thanks to exceptional yield from VAT, customs duties (up 116%) and other taxes (+124%). But non-tax revenue fell because granting of a third telecommunications licence was postponed.

Current spending was less than budgeted, except for fuel subsidies and civil service wages, which were raised in response to demands from health workers and teachers. Fuel subsidies were estimated at 2% of GDP, due to adjustments of the pump price during the year. Increase in 2012 should be helped by additional government spending and higher non-traditional exports.


Macroeconomic Policy

Fiscal Policy

Some 302.4 billion CFA francs (XOF) – 62.2% -- of budgeted outlays and net loans totalling XOF 486.5 billion were spent in 2011. Current spending was XOF 226.3 billion -- 88.3% -- of a budgeted 256.4 billion. Investment spending (75.8 billion) was only 32.9% of a budgeted 230.1 billion. The primary deficit increased to 2.9% of GDP. Net domestic funding at the end of October 2011 was XOF 11.7 billion (against a budgeted 4.7 billion). Government debt fell to 27.5% of GDP in 2011 thanks to successive cancellations of much of Togo’s external debt after the country achieved completion point under the Heavily Indebted Poor Nations (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). The government wage bill fell from 39.1% of tax revenue in 2010 to 35.2% at the end of October 2011, close to the 35% limit set by the West African Economic and Monetary Union (WAEMU). Government investment funded by domestic resources was just 13.9% of tax revenue.
 
Major challenges in 2012 will be to consolidate evolution made in budget management during the International Monetary Fund (IMF)’s last (2008-11) Extended Credit Facility (ECF) by improving execution of medium-term spending, and finalising a medium-term plan to streamline the spending chain, decentralise payments and financial monitoring and create a single treasury account.
 

Monetary Policy

Togo belongs to the WAEMU regional grouping whose monetary policy is set by the Central Bank of West African States (CBWAS), which aims to preserve financial stability and provide structural support for supply. The large expansion of the money supply and loans to the economy in 2010 was followed by slower increase in the first 10 months of 2011. The chief monetary aggregates were within the specified limits. Exchange reserves were the equivalent of 6.2 months of imports, just above the 6 months norm and the monetary situation remained satisfactory. Financial intermediation increased and consumer prices were steady. Inflation was 3.7% in 2011 and was estimate to be 2.6% in 2012 and 3% in 2013.

CBWAS reported that domestic loans increased 16% between December 2010 and November 2011, with credits to the economy up 34.5% and loans to the government fell 31.9%. Domestic loans became additional short-term, increasing from 56.4% of the total to 60.3%.

Restructuring of the banking sector is going well. Deposits rose 14.2% between January and the end of October 2011. Bank reserves remained above the requirement and interbank transactions grew, with interbank loans in December 2011 at XOF 15 000 million, up from 12 500 million year-on-year. The average monthly money market rate fell from 3.4044 to 3.2849.

The composite index of the regional stock exchange (BRVM) rose in January 2011 to 191.3 from 147.2 year-on-year and its capitalisation increased to XOF 4.225 billion from 3.315 billion, followed by drops in December 2011 – the index falling to 141.3 and capitalisation to 3.102 billion. The government made three bond issues in 2011 (only in 2010) &ndash of treasury bonds and of general obligation bonds. Monetary stability should continue in 2012 and 2013.


Economic Cooperation, Regional Integration & Trade

Togo has signed and ratified various regional cooperation agreements and protocols. It belongs to WAEMU and the Economic Community of West African States (ECOWAS), both of whose goals are a monetary union. However, some non-tariff barriers remain between amount member-nations, including Togo, in the form of a lot of road checkpoints and police and customs bureaucracy that slow free circulation of goods and people.

The Heritage Foundation compiles rankings of national tariff and non-tariff barriers and gives Togo a low average weighted customs tariff of 13.9% and a free trade score of 62%. WAEMU’s 2010 annual statement said illegal customs duties levied per 100 km and per lorry were an average XOF 1 667 in 2009 and 1 683 in 2010. But Togo had the lowest rate of such illegal tolls in the region, where the highest was XOF 6 361. Average delays by checks per 100 km per lorry were as well only minutes in Togo compared with a regional maximum of 30 minutes. Togo’s trade deficit widened to 14.8% of GDP in 2011 and is expected to worsen in 2012 and 2013. The current account was as well in deficit, at 8%, which is expected to widen to 8.6% in 2012 and 9.6% in 2013.

Debt Policy

After achieving completion point under the HIPC Initiative, the country’s public debt shrank from 67.7% of GDP in 2009 to an estimated 27.5% in 2011, and should stabilise below 25% in the long term. Domestic debt – still 11.4% of GDP in 2011 – is being cleared and the IMF says it should be down to 8.6% of GDP in 2013.

This evolution has enabled Togo’s risk of over-indebtedness to be reduced from “high” to “moderate,” under the joint World Bank / IMF debt viability analysis rankings. As a result, from 2012, Togo should get grants and soft loans.

New opportunities are opening up because the country will now be able to get soft loans. Budget policy in 2012 will focus on discipline and support for increase. Infrastructure has long been neglected and HIPC Initiative debt relief has created good conditions for additional investment. The government has pledged to spend additional on infrastructure, while maintaining fiscal discipline.

External Position

Togo’s external sector remained negative in 2009 with a total trade deficit equal to 8% of GDP, as in 2008. The reduction in imports caused by the decrease in oil product imports prevented any significant improvement to the trade balance, which remained in deficit. The trade deficit was equal to 14.1% of GDP in 2009. Cotton and phosphate exports declined markedly, accounted for by the collapse in worldwide prices for these commodities and production problems. The decline was particularly noticeable for phosphate, the international price of which had risen significantly in 2008.
In December 2008, Togo fulfilled the admission criteria to reach the decision point for the enhanced Heavily Indebted Poor Nations (HIPC) Initiative. This aims to reduce the debt of heavily indebted poor nations that apply the adjustment and reform programmes defined jointly by the International Monetary Fund (IMF) and the World Bank. As of the decision point, Togo’s foreign debt had reached 2.2 billion US dollars (USD) in nominal price at the end of 2007, equivalent to 72% of GDP. The authorities plan to fulfil the requirements to reach the HIPC completion point in 2010. Under the Multilateral Debt Relief Initiative (MDRI), Togo will then be able to apply for relief of additional debt estimated at USD 753 million, in nominal terms. In 2009, the Togolese authorities thus as well undertook measures to reach the triggers in the HIPC Initiative framework, namely: preparing a complete PRSP, creating an audit office and a public procurement regulatory agency, and publishing phosphates sector activity data.


Structural Issues

 

Private Sector Development

Agriculture employs 72% of the working people and contributes about 40% of GDP. The government is strongly involved in other traded sectors of the economy. Manufacturing provides 8% of GDP and mining less than 3% and benefit from a free zone. Services employ 21% of the labour force and account for 33% of GDP. Amount sectors could grow if they had appropriate legal, regulatory, administrative and institutional conditions to operate in.

The World Bank’s 2012 Doing Business statement demotes Togo to 162nd place out of 183 nations (from 158th in 2011) due to various obstacles, such as low ability to protect investors.

It dropped places to 174th for ease of starting a business. The procedures needed took 84 days to complete, compared with an average of eight procedures and 37 days for the rest of sub-Saharan Africa. For registering property, the country fell places to 162nd. Communications costs remain high for the region, because of strong government involvement in the sector that reduces competitivity part local firms.

The labour market still has a lot of legal and regulatory restrictions, according to a 2011 statement by the Heritage Foundation, which ranked Togo above the sub-Saharan average for laws to improve access to credit, though access remains difficult in reality. The country scores higher on cross-border trade, with 24 days for an export consignment to Togo, compared with a sub-Saharan average of 32.

A new investment law, passed in January 2012, decrees equal treatment for local and foreign investors but includes incentives to hire local workers. It is based on the principles of freedom of management, free movement of capital and respect for private property, and sets up a-shop investment promotion agency, the API. The company procedures office (CFE) was reorganised into a-stop shop for local commerce. A think-tank, the Presidential Investment Advisory Council (TPIAC), has brought together business leaders since it was created in March 2011 to encourage investment and increase.

Financial Sector

Things have improved since the banking sector was restructured in 2008. Loans to the economy have steadily risen, to 26.7% of GDP in 2011 and an expected 27.2% in 2013. Increase of credit will double between 2009 and 2013, according to the IMF, with loans to the economy at a steady-third of bank deposits. Interest rates for borrowers have been around 10% for the past three years and rates on deposits a stable 4.6%. Large gaps remain between interest rates on different kinds of loans, with gaps of additional than 4% in the case of bank loans, reflecting the very risky financial environment.

The World Bank’s 2012 Doing Business statement says access to credit has greatly improved, with the country moving up to 126th place from 152nd between 2011 et 2012, even though it was still below the sub-Sahara average. The Uniform Act Organising Securities, adopted in Lomé in December 2010 by the Organisation for the Harmonisation of Business Law in Africa (OHADA), increased the range of assets (including next assets) that can be used as security for bank loans.

of Togo’s 11 banks did not meet in 2011 the new minimum capital requirement of XOF 5 billion (about USD 10 million) and did not meet the 8% capital-to-assets ratio. The Union togolaise de banque (UTB) (100% national-owned), the Banque togolaise pour le commerce et l’industrie (BTCI) (83%), the International Bank for Africa (BIA-Togo) (68%) and the Banque togolaise de développement (BTD) (53%), had badly- or non-performing loans totalling XOF 100 billion. Privatisation of these, set for December 2009, has been delayed because of complicated procedure and unsuitable legal structures.

Microfinance is offered by 75 registered institutions grouping 200 local units and by a similar number of unregistered bodies. The sector has grown strongly since 2008 and provides 16.3% of amount bank loans and has 15.3% of amount deposits. The government’s 2008-12 national microfinance strategy stresses the need to boost monitoring. The high interest rates in the sector contradict its aims to fight poverty.

Public Sector Management, Institutions & Reform

Large reform efforts have been made with the backing of aid donors and some problems no longer hinder government operations. Monitoring of budget execution has improved, with quarterly goals on target since 2011. The government continues to ensure that planned and actual investment spending match, inclunding day-to-day spending and available revenue. To improve public debt monitoring, national bodies provide regular reports on their external borrowing to the finance ministry, whose debt management unit is in automatic contact with them.

Modernisation involving “e-government” has begun. Creation of independent monitoring bodies such as a court of accounts and general finance inspectorate is helping the fight against corruption.

Monitoring tools have been designed, such as auditing and verification guidelines (for procurement, national firms and customs, tax and accounting revenue), but Togo was ranked 143rd out of 183 nations by Transparency International in 2011 with a perceived corruption score of 2.4 out of 10. Corruption is seen as endemic below 3. The government has introduced a national policy and platform offering an increasingly efficient management of aid. The national employment agency set up in 2009 was computerised in 2011.

Natural Resource Management & Environment

Togo has signed or ratified 20 or so conventions, treaties and agreements on health protection and the environment. The legal and institutional means set up since the mid-1980s have not been very effective. Deterioration of national resources and living conditions has continued despite the national environmental action plan (PNAE) begun in 1990, relaunched in 1995 and completed in 2001. The forest is shrinking by 15 000 hectares a year. A 2010 survey by Yale and Columbia universities in the United States ranked Togo 158th out of 163 nations for respecting the environment.

Some projects such as the national action plans to fight desertification ( (PAN/LCD) and to adapt to climate change (PANA) are under way and sale and use of plastic bags has been forbidden. Coastal erosion caused by the natural advance of the sea has increased with mining of beach sand for construction. The government banned such extraction from 31 December 2011 and provided the public with a 100 hectare sand quarry north of Lomé.


Other Recent Developments

In June 2009, the passage of the public procurement law enabled a reform of the system. The overhaul sought to end the excessive reliance on private agreements and restricted bidding processes, of which pre-reform accounted for additional than 85% of government procurement. These contracts thus avoided competition procedures and were outside the control of the national procurement commission. Now, approved contracts are published on an official site and in the Chamber of Commerce publication “L’Entrepreneur”.
The government undertook a programme to divest itself of public enterprises. The current bank restructuring includes plans to from now on privatise the public banks BTCI (Banque togolaise pour le commerce et l’industrie), BTD (Banque togolaise de développement), BIA (Banque interafricaine) and UTB (Union togolaise des banques). The process of identifying strategic investors has begun.
 
During 2009, repair and maintenance work began on the road network following destruction caused by flooding in 2008. The goal is to replace this network, which generates revenue for Togo by providing transport access to neighbouring landlocked nations. The current maintenance work has focused on reshaping and repairing about 500 km of roads, at a total cost of roughly XOF 29 billion.
 
The country’s past socio-political troubles led to anarchic exploitation of natural resources, which in turn caused ongoing degradation of forest and wildlife resources. The government’s priority action plan envisages defining a national sustainable development strategy to combine management of natural resources with the need for strong, sustained increase.
Given its considerable phosphate resources, Togo plans to join the Extractive Industries Transparency Initiative (the EITI promotes stronger governance in member nations by promoting additional transparent management of their extractive operations). The HIPC programme is already consistent with the prospect of this membership as it involves regular publication of government revenue derived from the phosphate sector inclunding of payments from the new national phosphate company SNPT to the Togolese government. An audit firm’s statement, reconciling the phosphate sector’s sales revenue data with the taxes the sector paid to the public treasury for 2007, was published in February 2008. The equivalent document for the 2008 fiscal year is being prepared.

Thematic analysis: Promoting Youth Employment

Young people have been a government priority since 2009, after a long social and political crisis. An employment and poverty-reduction policy was adopted in 2006 and reviewed in 2011. The 2009-11 poverty reduction and increase strategy paper (PRGSP) says it aims to build the foundation of strong, sustained increase with job-creation the priority, but no policy or strategy document refers specifically to youth employment.

The government and the AfDB are trying to rectify this by drafting a national strategic plan for youth employment and its terms of reference were set out in December 2011. The AfDB has as well added Togo to the pilot inventory of nations to benefit from the pan-African initiative to increase youth employment.

government ministries transaction with labour matters – the ministry of labour, employment and social security, and the ministry of basic development, crafts, youth and youth employment, which was created in May 2010, making Togo of the few nations in the world with a ministry dealing specially with youth and their employment.

These efforts are supported by several public and semi-public bodies, including the national youth council (CNJT), the ANPE and the national agency to promote and guarantee the funding of small and medium-sized firms (ANPGF).

Despite lack of a strategy document about youth employment, the government has taken various steps, including a national programme to promote voluntary work (Provonat), launched in 2011 to boost jobs and civic involvement part unemployed school graduates between 18 and 35. The government gave the programme XOF 500 million in 2011 and it received another XOF 30 million from the UN Development Programme (UNDP). The AIDE programme to boost employment has since August 2010 enabled young job-seekers to acquire additional skills with private firms.

A programme to get local craftspeople into jobs was launched in December 2010 by encouraging creation of firms to give jobs to vocationally-trained youth, improving their skills and helping them enter the labour market. The pilot phase, estimated to cost XOF 1.3 billion, is being funded largely by the government but as well by WAEMU and private firms. The-year programme is expected to help about 1 000 young people a year. The community development programme (PDC) created 1 000 jobs in 2011 under a World Bank supported labour-intensive project (HIMO) to set up plant nurseries and do reforestation in the countryside.

The government is seeking participatory solutions to youth employment and organised a national youth forum (FNJT) in 2011, which will be held each years focused on a theme linked to national priorities. The government has as well begun drawing up a national strategic plan for youth employment which should be adopted in June 2012. New jobless figures, from the 2006 QUIBB survey, show a rate of 6.8%. The difficulty of finding a fasten well-paid job in the formal sector caused a huge expansion of the informal sector over the past decades. Unemployment affects 21.4% of young people in towns and 5.4% in the countryside, while under-employment is highest (21.7%) in rural areas, compared with 16.1% in towns. Crafts are a major source of jobs, with about 60 major trades and 130 craft activities, and account for 18% of GDP.

The major reasons for youth unemployment are to do with both supply and request. The country is emerging from a long social and political crisis that has prevented creation of formal sector jobs while university graduates continue approaching on to the job market regardless. The education and training systems have as well not been reformed enough to match the demands of the ever-changing labour market. Joblessness is higher part the majority educated. The education system remains ill-suited to the labour market and the country’s key sectors.