Togo: Risk Assessment
Country Risk Rating
Business Climate Rating
- Mining resources (phosphate, limestone and clay transformed into clinker) and agricultural resources (coffee, cocoa, cotton)
- Has the only deep-water port in West Africa (port of Lomé), potential to become a regional hub
- Public and private investment in infrastructure
- Ongoing structural reforms (public finances, banking system, agriculture, phosphate and cotton sectors)
- Member of WAEMU and ECOWAS
- Mostly concessional external debt
- Strong socio-political tensions
- Deficient business environment
- High unemployment and poverty rates (46.2% of the population in extreme poverty in 2020 according to the World Bank)
- Deficient agricultural infrastructure: storage, processing, irrigation, inputs
- Inadequate education, public health, and transport infrastructure
- Poor health of the banking sector; high bad-debt rate (especially in public banks)
A rebound in activity expected in 2021
The lockdown in effect between late March and early June and the weakening of demand from its partners led Togo to experience its first year without growth for over 15 years. It will pick up again in 2021, supported in particular by agriculture, phosphate mining, and port traffic. Consumption, which accounts for 80% of GDP, fell by 3.1% in 2020 because of falling incomes and renewed inflationary pressures in the first half of the year. It is expected to grow by 2% in 2021 thanks to the resumption of agricultural production, on which 60% of the labor force depends, provided there are no further lockdowns. Private investment fell by 16% in 2020 due to increased uncertainty but should rebound in 2021 (+11%). Even if the deterioration of public finances and the global tightening of credit conditions for investors poses medium-term risks to its financing, public investment will be supported by the National Development Plan 2018-2022 (USD 7.8 billion), as well as by several infrastructure construction projects (including 4,000 km of rural roads that will be built or rehabilitated in 2021).
Agriculture, which accounts for 40% of GDP, has been supported by the COVID-19 Agricultural Response Plan implemented by the government in April 2020 (distribution of agricultural equipment and granting of subsidized credits) and USD 3 million in aid from the ADB for the purchase of pesticides, fertilizers and seeds. This has allowed the sector to grow by 1% in 2020 and these investments will then allow for a growth of 3.3% in 2021. By contrast, services, which account for more than half of GDP, have been deeply affected by social distancing measures and border closures. In 2021, the resumption of container traffic, aided by China’s return to growth, will support the logistics sector and strengthen the Port of Lomé's status as a regional hub. Finally, the secondary sector has been tested by the decline in exports in 2020 but will be buoyed in 2021 by the expected rise in the price of phosphate.
Growing current account and public deficits
After several years of restrictive fiscal policy that have reduced public debt, the economic slowdown mechanically reduced budget revenues by 7% and increased public spending by 10% (with the implementation of various economic and social plans representing about 1.8% of GDP), thus sharply increasing the public deficit. As a result, debt has risen, even though Togo already devotes 65% of its public resources, excluding grants, to debt servicing, according to the IMF. The G20 debt service suspension initiative will have only a very moderate impact according to Moody's (0.4% of GDP in 2020), given that debt service payments to external creditors covered by this initiative are much lower than those to domestic creditors (1.4% versus 13.8% of GDP, respectively) due to the highly concessional nature of the external share of the debt (34% of GDP).
The current account deficit widened in 2020, mainly due to a drop in exports. Indeed, the large deficit in goods was aggravated by a 7.4% decrease in exports, due to the fall in the price of phosphate in the first quarter of 2020 (27% of exports), even though the fall in oil prices helped to contain the import bill. The services surplus has also widened, following a sharp decline in transport and tourism (7% and 15% of exports respectively). Moreover, remittances, which accounted for 7% of GDP in 2019, declined because of the consequences of the pandemic in developed countries. In 2021, despite moderate demand from trading partners, the expected recovery in the prices of the main export products (phosphate, cocoa, cotton) will allow for a 10% rebound in exports. Due to the decline in FDI, the increased deficit in 2020 could only be financed by increased recourse to international aid: USD 70 million from the World Bank, USD 29 million from the EU and an additional USD 97 million from the IMF under its Extended Fund Facility.
Socio-political instability but continuity of power
In May 2019, despite protests, some of which were violently repressed, Parliament passed a constitutional amendment limiting the number of consecutive presidential terms to two, but without retroactive effect. The outgoing President, Faure Gnassingbé, was then able to run for re-election in the February 2020 presidential elections, in which he won with 72.4% of the vote with a turnout of 76.6%, thereby allowing him to serve a fourth consecutive term. The result was contested and an appeal was filed by Agbéyomé Kodjo, former Prime Minister, but was rejected by the Constitutional Court for lack of evidence. These socio-political tensions, coupled with security problems in the region, will affect the business environment. The government's efforts have enabled the country to move up 40 places in one year in the Doing Business 2020 ranking (97th place), but governance remains very poorly ranked by the World Bank.