Benin: Harnessing the Power of Economic Diversification

December 12, 2017


I. Introduction and Theme

Ladies and Gentlemen: Good morning—Mi fon gandji a. [1]

I would like to thank Jean-Baptiste Satchivi for the kind introduction, and thank you to the Chamber of Commerce and Industry for giving me the opportunity to talk about the importance of economic diversification.

Let me start with something that is less about economics and more about diversity.

I am talking about the incredible richness and diversity of Beninese culture: from internationally acclaimed modern art [2] , to unique festivals and religious events, to the sublime beauty of traditional fabrics that play an important role in many families and communities.

These are only some of the things that capture the imagination of foreign visitors—especially first-time visitors like myself, who enjoy your incredible hospitality.

To my mind, promoting economic diversification is akin to weaving a beautiful traditional fabric. What do I mean by that? I mean weaving an economic fabric that is more complex, more resilient, and more beneficial to all families and communities.

We know that economic diversification is good for growth. Diversification is also tremendously important for resilience.

Think about it: relying heavily on one sector—be it oil, or an agricultural commodity—means a single shock can devastate an economy, stopping growth in its tracks, causing unemployment to rise and wages to fall, and sapping revenue so that critical public investments go wanting as debt levels rise.

The benefits are clear—stronger growth and an ability to weather shocks. But getting there through diversification is not an easy task—because it means changing longstanding policies and adapting the very fabric of society.

This is about empowering citizens to make transformational changes . Think of the entrepreneurs who launch new ventures in promising areas of the economy. Think of the workers who upgrade their skills to find new jobs in higher-productivity firms.

And think of the policymakers and community leaders who help create the right environment for economic diversification.

Effective policies are critical, and each country—often with the help of the IMF—is weaving its own fabric to reflect specific circumstances and comparative advantage.

There is no single pattern, but there are several common threads that increase the chances of successful diversification.

Today I would like to focus on these common policy threads —and how we can weave them together here in Benin and across Sub-Saharan Africa.

II. Boosting Economic Diversification in Sub-Saharan Africa

a) Transitions and Challenges

Let us start with the regional economic fabric. By improving policies and by strengthening institutions, governments in sub-Saharan Africa have contributed to fundamental progress over the past generation.

Many countries have enjoyed much longer periods of uninterrupted growth, rather than episodes of boom and bust. And millions of people now enjoy longer, healthier, and more prosperous lives.

Over the past 25 years, life expectancy in the region has increased by a fifth; infant and maternal mortality rates have halved; and primary school enrolment is up to 80 percent.

At the same time, several countries are struggling to lift living standards. This year, 12 of 45 countries in sub Saharan Africa—home to about 400 million people—are expected to see negative per capita income growth.

So there is work to do—especially when it comes to demographics.

We are at the beginning of a major transition—one that is driven by young and growing populations. By 2030, half of the annual increase in the global working age population is expected to come from sub-Saharan Africa.

This offers a huge opportunity —a demographic dividend that could bring higher living standards for all people in the region.

Governments can seize this opportunity by building on the progress made so far, and by tackling a range of challenges.

The goal is to encourage job creation, including in new sectors, and to help people develop the skills needed to take advantage of emerging opportunities.

b) Diversification Is Key

That is why governments are seeking to foster stronger and more consistent growth. This involves, among other measures, a greater emphasis on economic diversification.

One thing is clear: the potential benefits of weaving a more complex economic fabric are significant, especially for low-income countries.

New IMF analysis shows that a small increase in export diversification [3] —roughly the difference between Senegal and Thailand—can lead to a one percentage point increase in per capita GDP growth.

We know that these gains are achievable. Why? Because several countries in the region have successfully shifted a large part of their resources into higher-productivity areas. Let me give you some examples:

  • Rwanda has encouraged a rapid shift of employment and output from basic agricultural production to higher-value activity, especially services.

  • Botswana has built on its comparative advantage in diamonds by expanding along the value chain into diamond trading, cutting, polishing, and retailing.

  • And Mauritius shifted its focus from single-crop farming in the 1960s to more sophisticated agriculture, and from there to tourism, and to manufacturing and financial services.

These experiences show that there is no typical diversification pattern, and successful efforts will reflect countless individual decisions by people and businesses.

But there is a wealth of research by the IMF and others that shows several common threads that make diversification more likely.

Macroeconomic stability is key. So too are access to credit, a sound business environment, and—of course—quality infrastructure .

On that point, the African Development Bank estimates that annual infrastructure financing requirements for Africa as a whole amount to about $93 billion annually over the medium term.

Diversification is also driven by openness and trade integration, as well as foreign direct investment—which helps transfer technology, promotes skills development, and fosters competition.

Moreover, diversification is supported by lower income inequality and higher gender equality.

For example, IMF staff research shows that increasing gender equality can lift a country from the lowest rank for export diversification closer to the median. [4]

As Angelique Kidjo, one of Africa’s best-known singers, once put it: “ Our booming economies in Africa need more female engineers, teachers and doctors to prosper and sustain growth .”

c) IMF as Partner

That is why governments in the region are weaving together multiple policy threads—with the help of the IMF.

We at the Fund work in partnership with our 189 member countries to support their diversification efforts .

This means engaging deeply through our financial assistance, our analysis and policy advice, and helping our members strengthen their capacity for economic management.

In fact, sub-Saharan Africa is the largest recipient of our capacity development efforts.

For example: by strengthening revenue collection, countries can support investments in infrastructure, education and training, and even research and development. The goal is to help create a virtuous circle of diversification, stronger economic activity, and more revenue.

The Fund is also supporting the Compact with Africa, a joint initiative between the G20 and seven African nations so far—including Benin. This project is critical because it has the potential to boost private investment and create jobs.

What does all this mean for Benin?

III. Harnessing Economic Diversification in Benin

Benin is in a strong positon . Its political stability is widely admired. Its government is pushing for reforms that can boost the economic wellbeing of its citizens.

And growth is expected to accelerate this year to 5.5 percent, and is expected to remain strong over the medium term.

There is a huge opportunity to build on these strengths and meet underlying challenges, such as reducing high poverty levels—including through economic diversification.

The government is seeking to transform the agricultural sector, which employs about 70 percent of Benin’s workforce. The objective is to shift the focus to high-value-added crops and develop the food processing industry.

The government is also planning to unlock the immense potential of the tourism sector, which could become a new engine of growth and employment.

How can Benin achieve these diversification goals? Let me highlight some of the major policy threads that are now being woven together:

One is macroeconomic stability . Earlier this year, the IMF Executive Board approved a three-year arrangement totaling $150 million under our Extended Credit Facility.

This program is aimed at reducing the fiscal deficit, strengthening revenue collection, and supporting the government’s push for diversification.

We are linking these objectives to our capacity building efforts, focusing on tax policy, revenue administration, and public financial management.

A second policy thread is boosting infrastructure investment . Consider the potential benefits of providing a reliable electricity supply to companies and communities.

And consider the potential benefits of upgrading road networks, building a new international airport, and modernizing the Port of Cotonou.

These infrastructure needs call for higher public and private investment, including through the Compact with Africa. Strengthening revenue collection—as mentioned earlier—can create room to scale up public investment, while maintaining debt at a sustainable level.

There is also room to make public investment more efficient by improving the governance of infrastructure projects. We estimate that Benin could increase investment efficiency by 55 percent on average with the same amount of investment. [5]

A third policy thread is improving the business environment. The government could cut more red tape and boost transparency in public administration.

At the same time, nothing is more important for a better business environment than combating corruption.

We know that public corruption destroys investor confidence. But we also know that the private sector carries responsibility as well.

In his inaugural address, President Talon said he would “make the fight against corruption an ongoing and everyday struggle.”

The government has been strengthening its regulatory defenses against money laundering, and it could take another critical step by implementing an effective asset declaration regime.

More can—and should be—done. Fighting corruption is a multi-year, multi-generational struggle that must be won.

Let me add one more policy thread—and that is promoting more inclusive growth . Inequality is largely driven by the highly informal nature of the Beninese economy and low productivity in the agricultural sector.

The government can help improve agricultural productivity by strengthening land tenure, boosting irrigation, and fostering greater food security in rural areas.

There is room to invest more in health and education by stepping up fiscal transfers to disadvantaged areas. There is also room to adopt cost-effective safety net programs—such as e-vouchers and mobile transfers—to protect the most vulnerable.

Workers with more skills and better health will be more productive.

Of course, more inclusive growth also means empowering women at all levels of society. Benin performs well in terms of female labor force participation, ranking 7th out of 144 countries in the World Economic Forum’s Gender Gap Index. [6]

Now the challenge is to close the gender gap in education. If women had greater access to secondary education and universities, they would be less likely to get stuck in the low-paying informal sector.

By having the opportunity to become engineers, teachers, and doctors, women can build better and more prosperous lives, for the benefit of their families and communities—and for the benefit of Benin.

IV. Conclusion

Let me conclude with a Beninese proverb: “ Ohun ti a fi oni ṣe, itan ni i da bo dọla [7] —All that we do today remains etched in history.

Across Sub-Saharan Africa, governments are taking action to diversify their economies, as part of their efforts to promote more resilient and inclusive growth.

These actions will remain etched in history. Whatever we do today matters for future generations.

So let us work together as partners. Let us weave a better economic fabric that benefits all.

Thank you — é nan tchè-nou-mi [8]

[1] Vernacular language: Fon, or fongbé.

[2] Leading artists include Georges Adéagbo (sculptor), as well as Romuald Hazoumè and Calixte Dakpogan.

[3] Export diversification is measured by the Theil index, which captures the numbers of products a country produces and how concentrated the export base is.

[4] IMF Working Paper: Gender Equality and Economic Diversification, July 2016

[5] IMF report: “Benin—Staff Report for the 2017 Article IV Consultation and First Review”.

[6] The ranking of 7 is in a sub-ranking of labor force participation. Benin’s overall ranking in the WEF Gender Gap index is 116 (out of 144) due to very low rankings in education, health & political empowerment.

[7] Vernacular language: Yoruba.

[8] Vernacular language: Fon, or fongbé.

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