Togo: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|C||The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.|
Growth driven by investment projects in the mining sector
Growth in the Togolese economy will only be moderate in 2016. Activity should be underpinned by the primary sector along with services which account for almost 50% of the GDP. The leading elements in the latter are likely to be transport and international trade which have benefited from infrastructure investments. The entry of the mining industry giants Elenilto and Wengfu into Togo and the opening of its energy market to competition should help improve the electricity supply in a country where only 31% of the population have access to it. This should also enhance the extraction and production of phosphates and derivative products. By 2018, the annual production of phosphates is expected to reach 3 million tons, helping promote manufacturing sector production. The sector, however, remains subject to fluctuations in mineral prices. Public investment projects are expected to continue but will be impacted by a tighter grip on public finances arising in the context of a slight drop in aid flows. Inflation is likely to increase slightly but remain moderate in 2016, reflecting the trend within the other members of WAEMU, as the depreciation of the CFA franc against the dollar has more than offset the fall in commodity prices.
Public investment spending causing strain for the budget and current account balance
The rise in public spending and the narrow scope of the tax base resulted in a significant budget deficit on 2015. Current spending is therefore likely to be reduced to the essentials in 2016, with the exception of subsidies on fuel and spending on wages. Losses of revenue sources as a result of privatizations and the reduction in donations have also contributed to increasing debt. There should be a slight improvement in the current account deficit in 2016 because of the growth in re-exports (which represent almost a quarter of all exports) and exports of phosphates, cement and clinker as a result of greater regional integration. Imports of consumer and capital goods for infrastructure projects remain high, preventing any real reduction in the deficit. The primary income balance deficit, mainly arising because of profit repatriations by foreign companies, should hold steady. Meanwhile, remittances from workers abroad, subsidies from donors and FDI are expected to limit the extent of the current account deficit.
The President and his party have a firm grip on the reins of power, and Togo remains an important link in the fight against terrorism
The President, Faure Gnassingbé, who has been in power since 2005, will continue ruling the country following his re-election in the presidential elections on 25 April 2015 with a third term of office taking him up to 2020. His position is likely to be strengthened by Togo’s economic performances as well as the improvements in relations with its donors over recent years. He can also count on the support of the armed forces, who are containing the opposition. The government intends to implement a strategy for the reduction of poverty by 2017, as well as an Accelerated Growth Strategy aimed at stimulating growth, employment and economic inclusion, the strengthening of governance and reducing regional inequalities. For this, the government plans to make substantial investments in transport and energy infrastructures, and to increase social spending. Structural reforms of the energy and finance sectors should help boost economic growth and reforms in terms of receipts and the management of expenditure will be implemented to stabilize the budget situation.
Externally, Togo is expected to strengthen its relations with the other members of WAEMU, as well as the Economic Community of West African States (ECOWAS). In addition, the country is likely to continue with its significant contribution to peacekeeping operations on the continent, particularly in Mali. Finally, despite certain improvements around connections to electricity supply and contract performance, Togo is still performing poorly in terms of governance. The Doing Business 2016 report ranks the country 150th out of 189 countries.