Burkina Faso: Risk Assessment
Country Risk Rating
Business Climate Rating
- Africa’s leading cotton producer
- Gold exporting country (Africa's 5th largest producer)
- Member of the West African Economic and Monetary Union (which ensures the stability of the CFA franc, fixed parity against the euro)
- Low unemployment rate (4%)
- Supported by the international financial community (one of the first countries to have benefited from the HIPC initiative)
- Economy highly exposed to weather events
- Size of the informal sector
- Vulnerable to movements in cotton and gold prices
- Heavily dependent of foreign aid
- Weak electricity infrastructure
- Demographic pressures, high poverty rate, very weak human development index
Strong Growth Associated with Construction and Mining Activity
Growth recovered in 2016 and 2017, after two years of political instability, poor rainfall and relatively low commodity prices. Growth is set to remain high in 2018, boosted by gold production and public investment. The construction of a road linking the capitals of Ivory Coast and Burkina Faso (Yamoussoukro and Ouagadougou) is due to begin in 2018. The estimated cost of the project for Burkina Faso is CFA 1,200 billion (EUR 1.83 billion) and will probably be financed under a public/private partnership (PPP). Reforms enabling such contracts were introduced in 2017 and more public services are likely to be delivered by private companies in the years to come. In 2018, consolidation in the building and public works sector thus seems to be the order of the day and business owners in the sector are confident. Meanwhile, the AfDB has approved the 2017-2021 Country Strategy Paper, which is included in the National Plan for Economic and Social Development (PNDES) 2016-2020 and which focuses on growth by developing the energy and agriculture sectors. Agriculture will receive a boost from the start of operations at the agro-poles in Samendeni, Sourou and Bagre. The Zagtouli solar power plant, inaugurated in late 2017, financed thanks to loans from the African Development Bank (AfDB) and the Agence Française pour le Development (AFD) will enable the country to generate over 100 megawatts of electricity a year. Gold mining, the country’s most vibrant industry, is expected to remain dynamic with positive results posted by new market entrants in 2017. Private consumption will be sustained by stable food prices, lower unemployment and higher real wages.
Inflation, which is very sensitive to variations in food prices, and accordingly, to weather conditions, is likely edge up in 2017, but will be contained thanks to WAEMU’s monetary policy.
The Sustainability of the Fiscal Deficit Depends on Foreign Aid
The fiscal deficit is likely to widen and remain at a reasonable level in 2018, thanks to grants, which represented 18% of government revenues in 2016. Revenues are growing steadily, especially taxes on goods and services. Against this, current spending rose by 31.4% in the second quarter of 2017. This is a direct consequence of the implementation of law 081, which establishes a new civil service salary grid. The government is struggling to meet the WAEMU convergence criteria with regard to the fiscal deficit, wage bill and the tax burden. 74% of the deficit is financed via external debt, mainly through international creditors (AfDB, IMF, World Bank) as the domestic banking sector remains very precarious.
Despite the increase in orders for intermediate goods and equipment under the PNDES, the import bill is not expected to rise strongly as it is mostly dependent on the oil price and on the price of foodstuffs. Gold and cotton are the country’s two main export items (64% and 16.1% respectively in 2016). The external public debt (23.2% of GDP in 2016) is still mainly financed by concessional loans from international creditors.
THE POST-COMPAORÉ POLITICAL TRANSITION FACES A SECURITY CHALLENGE
In October 2014 the political scene was destabilized by a popular uprising (against a constitutional reform allowing the president to remain ad vitam aeternam) which brought down Blaise Compaoré, who had been in power since 1987. This was followed by an attempted military coup d’état against the transitional government in September 2015. Roch Marc Christian Kaboré was elected as president with 53.5% of the votes cast in late 2015. His party, the Movement of People for Progress (MPP), won the local elections in 2016. Because of the violence and unrest preventing smooth and fair elections in nineteen departments, partial elections had to be organized in 2017 to determine the distribution of 814 unfilled seats and this led to an increased lead for the MPP. However, the MPP’s position remains vulnerable against a background of local ethnic tensions and in a country strongly affected by poverty, unemployment and corruption. Supporters of Mr. Compaoré remain alert to the slightest false move by the government.
Poor-quality infrastructure, difficulty in accessing credit and a weak financial system make for a difficult business climate (146th out of 190 according to the World Bank’s 2017 Doing Business rankings). Regional security remains one of the main challenges for the country, attacked several times since 2015, especially from the north. The latest attack was on a restaurant in Ouagadougou, which left eighteen dead and about ten injured in August 2017. The threat posed by Islamist groups in the Sahel is a challenge to political stability and an obstacle to overall progress on investment. In 2017, the G5 Sahel countries (Mali, Mauritania, Niger, Chad and Burkina Faso) decided to set up a counterterrorism force to combat Al-Qaeda in the Islamic Maghreb (AQMI). This joint force will benefit from training and logistical support from Morocco and from financial support from the European Union (EUR 50 million).