Benin: Risk Assessment
Country Risk Rating
Business Climate Rating
- High growth potential, low inflation
- Significant international financial support (ODA, HIPC, MDRI)
- Strategic position (access to the sea for hinterland countries)
- High poverty
- Narrow and volatile export base (dependent on cotton price fluctuations)
- Erratic electricity supply
- Governance gaps: corruption, rule of law, regulation
- Impact on activity and tax revenues of Nigeria's economic policy decisions
- Terrorist threat from neighboring Nigeria and the Sahel
- Low bank profitability, low government revenues
Slowdown in 2020, comfortable growth projected for 2021
After a slowdown in 2020, and despite having a health system that was ill-prepared to face a health crisis, Benin should return to comfortable growth in 2021. However, the pace of expansion is expected to be slower than before the crisis. Private consumption, which accounts for 63% of GDP, declined slightly in 2020 (-1% estimated) and should just return to its pre-Covid level in 2021. The crisis actually had little impact on consumption, thanks to both to the stimulus plan subsidizing water and electricity consumption and to the fact that 40% of the working population depends on agriculture, a sector little affected by the crisis. Investment decreased by around 3% of GDP in 2020, but should also revert to its pre-crisis level in 2021. It will be driven by public investment, notably in the electricity sector and road infrastructure, whose efficiency will be further improved by the Public Investment Management and Governance Support Project (PAGIPG). Against a backdrop of sluggish international trade and falling cotton prices ((-40% in the first quarter of 2020 followed by an upturn in the second half of the year) exports fell by 22% between 2019 and 2020, driven down by the decline in cotton exports, which account for 57% of the country's exports. Furthermore, the recession in Nigeria, Benin’s main trading partner, coupled with the border closure imposed by Abuja in August 2019, further curtailed Beninese exports. However, they should increase in 2021 as cotton prices rise and the economic situation of trading partners improves.
On the supply side, the primary sector was spared by the crisis, and production (cotton and cereals) is expected to increase by 2.4% in the 2020 - 2021 agricultural season. In 2021, the secondary sector will benefit from infrastructure projects, which will support the construction sector as well as manufacturing industries (cement, reinforcing bars, etc.). The services sector has been most affected by the crisis (average decline of 13% in 2020), and some sub-sectors, such as tourism, which accounts for 6% of GDP and 5% of jobs, will remain in a difficult situation in 2021.
Slight widening of the current account and public deficits following the crisis
To contain the effects of the health crisis, in June 2020 Benin implemented a stimulus plan worth 74 billion CFA francs, or EUR 113 million and about 1% of GDP. The plan aims to support businesses in the hardest-hit sectors (tourism, transport, catering) as well as the most vulnerable households. With the decline in resources and the increase in spending due to Covid, the public deficit has deteriorated slightly, but fiscal consolidation is expected to resume in 2021.
The current account deficit deteriorated in 2020. The decline in global demand for cotton and cashew nuts caused the goods deficit to worsen, while the services deficit also increased because of reduced activity in tourism and transportation. This deficit is expected to narrow in 2021 as exports increase by more than imports. However, these figures do not reflect overall trade. Informal trade continues along the border with Nigeria, albeit at a reduced level since the border was closed. This situation, which is due to the inability of the two states to prevent smuggling, explains part of the trade deficit, as Benin's exports are probably more underestimated than imports in the official figures. The country will benefit from concessional loans provided by international institutions in 2020 to fight the coronavirus and support the budget and investment, including USD 125 million from the IMF under the Extended Credit Facility, USD 90 million from the World Bank and USD 7 million from the ADB.
Persistent political tensions
Benin is traditionally one of the most stable countries in French-speaking Africa. But Patrice Talon's presidency seems to be pushing the country towards an authoritarian regime in which political pluralism is being undermined. Benin has many political parties, but changes to the electoral code in 2018 have made it very difficult to participate in elections. After the 2019 legislative elections, only two parties from the presidential party faction made up the parliament. This sparked severe unrest, which resulted in the deaths of several demonstrators. In the municipal elections of May 2020, which were widely criticized as being forced elections, the two main parties of the presidential majority won the vast majority of votes (77%). Only one opposition party, the Cowry Forces for an Emerging Benin (FCBE), managed to make inroads, taking 15% of the vote.
Beyond the slide into authoritarianism, there are other challenges. Benin faces a very real terrorist risk. Boko Haram is nearby in Nigeria and Cameroon, and French citizens were kidnapped near the border with Burkina-Faso in 2019. In addition, the Gulf of Guinea has become a global piracy hotspot.