African Market 20.07.2021

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The Republic of BURKINA FASO : Economic Perspectives

With an economy mainly based on Agriculture (more than 20% of GDP), the Republic of Burkina Faso is a low-income Sahelian country. Like most developing countries, Burkina Faso is facing key development challenges such as health, education, insecurity and poverty :
• About 40% of the population still live below the poverty line of USD 1.25 per day
• Completion rate in primary schools is 64.3% for girls and 56.6% for boys
• In 2019, at least 1,035 primary and secondary schools were closed in areas affected by terrorism, depriving around 141,000 students of education
• In 2019, 6.1% of the labor force was unemployed (World Bank).
However, the country is the 4th largest Gold producer in Africa and has experienced in recent years strong economic growth, driven by the increase in the production of gold and cotton. Over the past five years, Burkina Faso has significantly increased its gold production from 35 Tons in 2015 to 52.6 Tons in 2018 and then to 50.3 Tons in 2019. With 14 industrial Mines in operation, the country expects a production of 60 Tons in 2020.

In 2019, mainly driven by the service and mining sectors, the country’s GDP grew by 5.7%, the economy has shown resilience despite threats to its security, many Jihadist attacks in particular in areas with a high concentration of Gold mines.

About 28% of the population is engaged in subsistence agriculture and cotton remains the main cash crop, the others are peanuts, shea nuts and sesame.
• The Primary Sector employs nearly 25% of the working population and contributes to 20% of GDP. The staple crops of the country are millet, sorghum, maize and rice. The industrial sector is dominated by state-owned companies and Gold accounts for ¾ of the country’s total export earnings, making Burkina Faso very sensitive to fluctuations of gold
price.
• While it employs nearly 34% of the working population, the Secondary Sector contributes up to 23% of GDP. 30% of jobs in the Tertiary sector are generated by financial institutions, the 3 largest banks (Bank of Africa, Burkina Faso Atlantic Bank and Burkina Faso Housing Bank) hold nearly 60% of total financial sector assets.
• The Tertiary Sector employs 38% of the working population and contributes to 44% in the breakdown of GDP.

With 20 million inhabitants, the 19th most populous country in Africa, Burkina Faso, is the continent’s 26th richest country with an estimated GDP of USD 16 Billion in 2020. In order to improve its business climate, the country will have, in the medium term, to modernize its management of public affairs, readjust public finances, increase spending on basic infrastructure and social sector and reform its financial system. The country is ranked 151st out of 190 countries in the World Bank’s Doing Business 2020 and 182nd in the UNDP Human Development Index.

On a Demographic point on view, this former French colony, where the capital Ouagadougou concentrates 10% of the population, has 60% of its population which is Muslim, 30% is Christian and 10% have traditional African beliefs. Population density is 72 inhabitants per km² with life expectancy at birth of 61 years (SSA average is 60.5 years). Ethnic composition in the country is as shown.

On a Political point on view, the country is chaired by President Roch Marc Christian Kaboré, elected in December 2015. An election which put an end to the transition initiated in October 2014 by the fall (under popular pressure) of President Blaise Compaoré, who had led the country since 1987. Since 2015, Bukina Faso has faced growing insecurity linked to the rise in
terrorist and criminal activities in the Sahel with the creation of a local Jihadist group, Ansarul Islam. In July 2017, many intercontinental and international organizations and countries gathered to launch the Sahel Alliance to contribute to the stabilization of the G5 Sahel member countries (Burkina Faso, Chad, Mali, Mauritania and Niger). President Roch Marc Christian Kaboré was reelected in November 2020 for 5 more years with a majority held by his party in the National Assembly. On an Economical point of view, according to the IMF, due to the outbreak of Covid-19, GDP growth in Burkina Faso is expected to slow to 2% in 2020 and recover to nearly 4% in 2021 with a global economic recovery post-pandemic. The country is subject to major internal and external risks. Externally, Burkina Faso’s economy is highly vulnerable to volatile commodities prices : oil import prices as well as gold and cotton prices. Internally, its economy is hampered by its faulty infrastructure : bad quality roads, unsuitable and unsustainable electrical infrastructures.

Inflation rate fell to -3.2% in 2019 because of exceptionally good harvests over the past two years and the falling telecommunication prices due to increase competition. Inflation rate is expected to rise to 2% in 2020.

Gross public debt represents more than 42% of the country’s GDP and Budget deficit should remain at the level of 3% of GDP limit of the West African Economic and Monetary Union.

Extremely dependent on foreign aid, Burkina Faso is considered to be at high risk of debt distress. Therefore, the country has joined forces with Mali and Côte d’Ivoire to launch joint special economic areas and has been granted a three-year Extended Credit Facility arrangement for USD 157.6 Million.

In August 2018, Burkina Faso was the 128th economy in the world in terms of GDP (current USD) (110th in the total exports and 141st in total imports). The country exported USD 5.68 Billion and imported USD 4.05 Billion, resulting in a positive trade balance of USD 1.63 Billion. The top exports of Burkina Faso are Gold ($4.28B), Raw Cotton ($321M), Coconuts, Brazil Nuts
and Cashews ($219M), Zinc Ore ($210M) and Raw Zinc ($188M). South Africa exports mostly to Switzerland ($3.21B), India ($1.16B), Singapore ($253M), Côte d’Ivoire ($210M), and Ghana ($109M).

The top imports are Refined Petroleum ($713M), Packaged Medicaments ($122M), Rice ($111M), Cement ($95.7M) and Delivery Trucks ($83.6M). It imports mostly from Côte d’Ivoire ($549M), China ($373M), France ($337M), Ghana ($248M) and India ($230M).

Summary :
Burkina Faso is a low-income Sahelian country whose economy is still highly dependent on the limited natural resources it possesses :
• In 2019, Gold was still representing more than 70% of the country’s total exports.
• Thus, Burkina Faso’s economy is highly vulnerable to volatile commodities prices in particular Oil and Cotton prices.
• The political environment is stable with a government working to decrease corruption in public companies but rising Jihadist attacks have deteriorated the business environment.
• Even if the Budget deficit still lies at the level of 3% of GDP limit of the WAEMU, the country has to develop private financial resources in order to be less dependent on foreign aid.
• The government has to deal with the increasing unemployment rate (8.6% in 2016) of young people.

Written on 05/01/2021

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