Burkina Faso: Risk Assessment

Country Rating¹

Rating: C

Business Climate Rating¹

Rating: C

Risk Assessment²

Essentially satisfactory economic performance but limited diversification of the productive apparatus
The farm and mining sectors fueled the recovery in 2010 with inflation easing thanks to good harvests. Growth is expected to remain strong in 2011. Buoyed by the operation of new mines, gold production will likely continue to rise. And, with weather conditions improving and farmers incited to increase land under cultivation, cotton production is expected to recover. The industry is moreover likely to benefit from financial aid granted by the European Commission. Meanwhile, the government has taken steps to revive investment in subsistence agriculture. And foreign capital is expected to facilitate restarting the construction of a zinc mine. A moderate rise of inflation appears likely, spurred by stronger domestic demand and high energy and transport costs exacerbated by the country's landlocked status.

High dependence on foreign aid
Exporting a few staple commodities and importing intermediate goods and equipment from abroad, Burkina Faso suffers from a trade balance structurally in deficit. The size of the current account deficit has only been held down by the influx of expatriate worker remittances and international aid. The growth of this deficit has been slowed in 2010 by the upturn in world prices and the rise of gold exports, which now represent 46% of sales abroad and have thus taken over from cotton as the country's main source of foreign exchange. The current account imbalance is expected to worsen in 2011 as a result of import growth and less favorable terms of trade.

Progress on implementation of the government's program, supported by the IMF via a new Extended Credit Facility, has been satisfactory overall. Tax reform is in the process of being implemented with fiscal management gaining in efficiency. Despite debt relief granted under the HIPC and MDRI initiatives, the external and public debt sustainability remains exposed to external shocks, particularly those affecting the development of exports. This risk underscores the necessity for Burkina Faso to continue to benefit from concessional loans from abroad, carry on with the reform program, and diversify its export base.

A relatively stable political situation but persistent social tensions
These past years the country has played a pivotal role mediating various West African conflicts (Côte d'Ivoire, Togo, and Guinea) and is involved in negotiations to free the hostages held by AQMI terrorists. Burkina Faso has proven resilient to the shocks stemming from the crisis in Côte d'Ivoire where some three to four million Burkinans reside. President Compaoré, in power since 1987, and his party, Congrès pour la démocratie et le progrés, continue to dominate the political scene. The majority party has nonetheless had to face defections with the people benefiting from only limited access to basic services and the level of poverty stoking social unrest. With the opposition remaining divided, however, the incumbent president was well placed to win again in the November 2010 presidential election.

Strengths

• Major cotton producer, gold production under development
• Implementation of structural reforms and improvement in the business climate
• Support of the international community (among the first countries to benefit from the HIPC initiative)

Weaknesses

• Lacking diversification, an economy vulnerable to exogenous shocks with cotton the main source of export revenues
• Banking sector highly exposed to the cotton sector
• High sensitivity to weather conditions and raw-material price trends
• Dependence on foreign aid
• Landlocked geographic position
• Demographic pressure