Burkina Faso 1. SOCIAL & DEMOGRAPHIC OVERVIEW. 1.1 Background

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1 Burkina Faso Country Report Developed for the Francophone Africa Business (FAB) Forum 1. SOCIAL & DEMOGRAPHIC OVERVIEW 1.1 Background The West African nation of Burkina Faso covers an area of 274, 000 km2 Of its total land mass 253,800 km2 (20.8%) is designated arable land, with 46% allocated for conservation. The landlocked nation shares its borders with Benin, Côte d'ivoire, Ghana, Burkina Faso, Niger and Togo. Nationality Burkinabe Population 18.6 million (2016) Population growth rate 3% per annum (2017) Burkina Faso s main resources are phosphates, limestone, marble, gold and cotton. Ouagadougou, a city of 2.5 million inhabitants, is the nation s capital and doubles as its administrative and economic centre. The country s population, according to 2017 estimates by the World Bank, exceeds 18.6 million, of which 29.9% reside in urban areas. Age structure 65% <25 years (2016) Birth rate (per 1000) 41.6 births (2016) Sources: World Bank, 2016; Central Intelligence Agency, 2016 &

2 2. POLITICAL ENVIRONMENT 2.1 Governance As per Mo Ibrahim Index of African Governance (IIAG), the premiere assessment of governance on the African continent, Burkina Faso ranks 23rd out of 54 nations surveyed in The country s overall governance score of 51.8 surpassed the African average of 50. In 2015 Burkina Faso registered an increase of +1 to its governance score, as well as registering improvements in three of four IIAG categories. Human Development recorded the largest improvement of +6.7, a result of the government s renewed effort toward implementing smart social and economic policies. Similarly, Participation and Human Rights registered an improvement of +1, with Sustainable Economic Opportunity registering a modest progress of These modest improvements go to show that the newly-elected government is taking the necessary steps toward improving the state s managerial capacity which was impaired by political turmoil of the previous years points +1 points +0.3 points +6.7 points Source: IIAG,

3 2.2 Political Stability The uprising of October 2014 brought an end to President Blaise Compare s efforts to amend the constitution to prolong his reign ousting him from office. The sudden end of President Compaore s rule left a power vacuum which prompted the military to stage a coup d état. Following massive street protests, the coup crumbled, paving way to peaceful national and municipal elections in 2015 and 2016, which saw Roch Kabore elected president. The transition to multi-party and democratic elections has strengthened political stability. Although weakened democratic institutions leave much to be desired, the country s engaged civil society guarantees continuing advancement of democracy. Since assuming office, the President Roch Kabore s government has made slight advances toward reinstating order and confidence in country s political and judicial process. As per the World Governance Indicators, complied by the World Bank, between 2013 and 2015, Burkina Faso improved its Control of Corruption score from -0.6 to 0.3. A year after the coup disrupted the functioning of Burkinabe government, the World Governance Indicators notes a measured improvement in both Effective Governance and Political Stability and Absence of Violence. In comparison, Nigeria Africa s second largest economy and a maturing democracy scored -1.1 on Control of Corruption and -1 on Government Effectiveness in Although these improvements are slim, it nonetheless is an indication of President Kabore s administration threading the right path towards restoring accountable governance. Control of Corruption -0.6 (2013) 0.3 (2015) Country Fragility Although short-term insecurity remains a concern, with the Burkinabe government having recently introduced a programme for addressing root causes of terrorism in its portion of the Sahel region, medium and long-term security is bound to improve. The above sentiment is corroborated by figures reported by Fund for Peace in its 2017 Fragile States Index report. The report notes an improvement in Burkina Faso s ranking, climbing from 33rd in 2015 to 44th out of 178 countries surveyed for the likely risk of state failure arising from social, economic, political and military factors. Despite continuing vulnerability, the mild security progress attained by the new government is expected to continue as implementation of programmes mature in their second year. 3

4 3. ECONOMIC ENVIRONMENT 3.1 Economic Performance In 2016, the Services sector dominated the economy, representing 46% of GDP, with Agriculture and Industry sectors representing 35% and 22% of GDP. In the same year, the Agriculture sector grew by 10%, whereas the Service and Industry sectors contracted by 4% and 6% respectively. Despite drought-affected harvest, and social and political upheavals of recent years, in 2016 the Burkinabe economy began a gradual ascent. Real GDP grew by 5.4%, well above the 4% rate of 2014 and 2015, although below the 6% average of recorded between 2005 and The recovery is partly driven by productivity increase in the mining and agricultural sectors; with the implementation of sound economic reforms been another factor. Graph 1: GDP Composition Services Agriculture Industry Graph 2: Annual GDP Growth: Burkina Faso and World (2006- GDP Growth (Annual %) 22% 35% 46% Percentage (%) Burkina Faso World Sources: The World Bank, 2016 Year ( ) 4

5 3.2 Economic Outlook Pursuant to harvest surpluses of 2016, coupled with reasonable prices for oil and imports, inflation in 2017 should not surpass 2.1%, as per African Development Bank s (AfDB) estimate. With continuing favourable prices for agricultural produce, the sector is expected to sustain economic gains in the coming year. Similarly, the Industry and Services sectors are anticipated to benefit from the government s renewed effort to catalyze rapid economic development. The government, through its flagship industrialisation programs (PNDES and POSICA ) has put measures (i.e. Public-Private-Partnership instruments and SME tax incentives) in place to promote development of energy, transport, infrastructure and technology sub-sectors. The effects of social and political unrest of the past years had a toll on government s domestic resource mobilisation. As a result, public expenditure dipped to 8.6% of GDP in 2015 increasing slightly to 10.6% in The return of foreign investments and the rebound of gold and cotton prices in 2016, along with much needed infrastructural developments, have caused the government to increase its public expenditure for 2017 and All things considered the increase in public expenditure signals a government confident its economic prospects. The governments assuredness is well founded. In the current year, the World Bank s estimates Burkina s economy is set to grow by 6.1% well over the global rate of 2.7% GDP $12.3 bn (2017) GDP per capita $1879 (2017) % Interest rate 0.7% (decrease of 0.9% in 2016) Labor force (f) % (2017) GDP real growth 5.9% (2016) GDP growth 6.1% (2017) Government revenue $2.4 bn (2016) Government expenditure $2.8 bn (2016) Unemployment rate (f) % (2017) Sources (2016 & 2017): CIA, DESA/UNSD, ILD, IMF, the World Bank 5

6 3.3 Foreign Direct Investment (FDI) Burkina Faso promotes FDI by stimulating private investments in variety of sectors. The favourable tax and legal instruments implemented, such as permitting foreign companies to own 100% of shares in a local company, has seen the country increase its FDI stock for six successive years. However political upheavals of 2014 temporarily upended this positive trend. In fact, FDI inflows after reaching an all-time high of $490 million in 2014 plunged to $232 million in the following year. Following the 2015 election, Burkina Faso has seen an increase in its foreign direct investments. For instance, in 2016, FDI Inwards flow grew by 25% of the previous year, as reported by UNCTAD. From Table 2 presented below, one observes an increase in both the FDI stocks as well as sharp increase in net FDI Greenfield expenditure. These improvements point to the return of investor confidence in Burkina Faso s economy. Table 1: FDI (in USD) FDI Inward Flow (in millions) FDI Stock (in millions) ,693 1,745 1,984 FDI Stock (in % of GDP) % 15.7% 16.7% Number of Greenfield Projects Size of Greenfield Investments (net expenditure, in millions) Source: FDi Markets, 2016; UNCTAD,

7 Notwithstanding these improvements, the country s security situation and the functioning of rule of law has deteriorated. According to IIAG, in the past decade, Safety and Rule of Law in Burkina Faso declined to -4.6, compared to the African average score of The ensuing power vacuum of President Blaise Compaore s resignation coupled with the failed military coup of 2015 caused the steep decline. With both developments resolved, the strengthening rule of law is anticipated. However, on-going instability in the South of the Sahara desert (which borders north of Burkina Faso) and lack of adequate resources to stem the flow of armed-terror groups into the country will continue to test the durability of the states governance capabilities. Table 2:IIAG Sustainable Economic Opportunity Score: Burkina Faso and selected West-African Countries ( ) Country Trend Burkina Faso Benin Ivory Coast Mali Nigeria Source: IIAG,

8 3.4 Doing Business in Burkina Faso In 2016, Burkina Faso placed 136th out of 190 countries on the Ease of Doing Business ranking complied by the World Bank, a four-point improvement from that of the previous year. However due to on-going low-scale security threats posed by terrorists groups, Burkina Faso dropped to 146th position as per the World Bank s recent assessment. Casting a long view, Burkina Faso's made considerable gains in rendering its business environment hospitable to commercial ventures. For instance comparing the country s 2006 rank of 166th with its current position indicates a staggering twentypoint progress. This long-term improvement is an outcome of Burkinabe government s attempts to forge a competitive business environment. In 2016, the government introduced a reform reducing the minimum capital requirement, making cost of setting up a business less capital intensive. Further, successive reforms instituted since 2014 has resulted in reducing by half the duration required for registering a business. Improvements to Ease of Doing Business in Burkina Faso: 1. It takes 13 days to start business compared to Sub-Saharan Africa (SSA) average of 27 days 2. It takes a total of 121 days to secure construction permits compared with 152 days in OCED high-income countries, and 155 in SSA countries 3. Total of 4 legal procedures are required to register a business, compared to 4.5 procedures for OCED high-income countries, and 6.2 for SSA countries. FUN FACT Burkina Faso is the birthplace of Thomas Sankara the post-colonial revolutionary leader. In his lifetime, Sankara was known as Africa s Che Guevara. A moniker he earned by introducing gender-equality policies (first in Africa) and adhering to a zerotolerance for corruption rule. He is widely recognised for the aphorism he who feeds you, controls you, capturing his aspiration to wean Burkina Faso off international aid toward a path of economic self-sufficiency. This sentiment still prevails in Burkina as 8

9 4. OVERVIEW OF SECTORS Albeit its bright prospects Burkina s economy is largely reliant on export revenue from commodities, and thus vulnerable to fluctuations in commodities prices on the world markets. To shield its economy from excessive external shocks, in recent years, the government has sought to diversify its economic base by implementing initiatives aimed at scaling-up production of goods and services in non-agricultural sectors. In line with the sectorial focus of NABC s 2017 FAB Forum, what follows presents opportunities within Energy, Water and Logistics sectors as aligned with the Burkinabe government s drive for economic transformation. 4.1 Water With only one river in Burkina Faso, the country s (drinking) water resources are limited. A mere 72.4% of the total population have access to improved drinking water of which many experience frequent water shortages. To increase access to regular supply of improved water, the government has initiated the Urban Water Sector Project (UWSP, ). The initiative is meant to increase access to pipe water by developing household connection and standpipes. In line with its UWSP program, the government is at present seeking to partner with private business to rehabilitate, as well as develop new infrastructure to meet the growing demand for improved drinking water. Burkina s over-burdened irrigation network poses direct threat to its economy, which is dominated by agriculture. Realising the threat to its economics growth, the government seeks investments in irrigation networks and water management infrastructure. The governments willingness to attract commercial-scale irrigation network renders investments attractive, since foreign investors can negotiation favourable terms. 9

10 4.2 Energy Burkina Faso derives 59% of its energy from fossil fuels and 41% from renewal energy (mainly thermal and solar). With no known significant fossil fuel resources, the country resorts to bulk importation to meet its energy needs. High costs of energy importation have adverse impact its exchange of trade reserves. On the other hand, erratic weather patterns have further increased interruptions to generation of hydro and thermal electricity, leaving over 88% of population without access to power. Quelling this double-edged sword requires the country to expand its production capacities, all the while ensuring reliable and affordable supply of electricity. It is against this backdrop that the Burkinabe Government has outlined policies for shifting its production portfolio toward renewable energy and electricity. In doing so, the government has begun implementing programmes aimed at boosting energy production as well as reducing its reliance on imported fossil fuels. The government s ambitious plans coupled with implementation of smart programmes with the financial support of the AfDB and the World Bank present ample opportunities for investment in Burkina Faso s energy sector. Outlined below are some prospects within three energy sub-sectors: I. Electricity Provision Over the last decade demand for electricity has grown by 13% per annum on average, against 8% increase in the rate of supply. Hence a mere 17.6% of Burkinabe s have access to electricity. The country s annual per capita electricity consumption is estimated at 44 kwh one of the lowest on the African continent. Amidst this low consumption rate, in 2016 the country incurred a 70 MW energy deficit, as the AfDB reports. The abundance of demand coupled with capital injection from multilateral financial partners signal opportunity for investments in refurbishment of electrical facilities and development of new distribution networks. Furthermore, there exist sizable market for supplying small and medium enterprises with reliable energy supply since these businesses do not have the capital required to procedure and maintain stand-by power generators. 10

11 II. Solar In June 2017, the World Bank approved $80 million credit for Burkina Faso s Electricity Sector Support Project. The funds is meant for incorporating lowcost solar resources into the country s energy mix as well as scaling up its distribution network. Under this loan facility, the Burkinabe government has announced its intention to develop 20 solar energy plants for generation of 150 MW. In 2016, the government commissioned the construction of a 30 MW solar power plant. Furthermore, under the framework of nation Energy Sector Policy ( ) the government is actively seeking publicprivate-partnerships in scaling-up the solar energy sub-sector. The mixture of government enthusiasm, long-term fiscal commitments from multilateral financial institutions, and relatively underdevelopment of the sub-sector show unequivocally the existence of opportunities for foreign investments. III. Thermal An astounding 57% of electricity is generated by thermal power plants. However, frequent breakdown of power plants has impaired local power generation capacity. To remedy the situation, the Burkinabe government under its POSEN program, co-financed by AfDB is presently seeking to contract an independent operator for 100 MW thermal power plant. Additionally, there are prospects for developing state of the art thermal power plants. 11

12 4.3 Transport & Logistics II. ICT I. Road Infrastructure Burkina Faso, being landlocked, relies on neighbouring countries with port capabilities. Over 80% of the country s import and export flows are transported by road. Consequently, Burkina s 15,2002 km road infrastructure is central to its economic advancement. Yet the country faces a considerable backlog of road rehabilitation. Recognizing this, the government has renewed its commitment to improve road-infrastructure. In 2016, the government announced it will be allocating over $100 million towards improving its road infrastructure. Acknowledging the economic benefits to be gained from modernising its information and communication capability, the Burkinabe government is currently pursuing infrastructure development in the ICT sub-sector. Under its component of the West Africa Communication Infrastructure Project, the Burkinabe government has earmarked $20 million towards upgrading its ICT infrastructure. Opportunities in the sub-sector: - Recently announced initiative to develop fibre optic network between the Ghana and Ouagadougou border as part of drive to improve ICT sector. - Liberalisation and deregulation of sector to promote private sector investment. - Low level market power concentration. 12