Francophone West Africa: Economy Accelerating, But Still Slow

BMI View: Upward revisions to our 2013 economic forecasts for Côte d'Ivoire, Chad, and Equatorial Guinea have led us to predict real GDP growth of 5.1% across West Africa's 15 franczone economies. We forecast that the region's economy will expand by 5.5% in 2014 and 5.8% in 2015 as growth picks up in several Central African states. BMI stresses, however, that growth in the Central African bloc will be slower than that in the XOF-using Western states, and that the entire region will perform poorly by African standards.

If taken together, the two currency blocs of West Africa's franczone have a combined economy that is a third larger than Angola's. If French-speaking Guinea is included, the region's population is only just less than that of Nigeria, while total exports are nine times larger than those of Kenya. Rapid mining growth, higher-than-expected oil production, and rising consumer spending have led BMI to upwardly revise our forecasts for countries across the region, where we see growth accelerating over the coming years.

Despite this positive momentum, however, BMI expects growth in both the Western Union Économique et Monétaire Ouest-Africaine (UEMOA) and the Central Communauté Économique et Monétaire de l'Afrique Centrale ( CEMAC ) to underperform their African peers. With few exceptions, poor governance, undiversified economies, and cripplingly poor business environments will depress growth across most franczone states.

A Contender?
Francophone West Africa

BMI View: Upward revisions to our 2013 economic forecasts for Côte d'Ivoire, Chad, and Equatorial Guinea have led us to predict real GDP growth of 5.1% across West Africa's 15 franczone economies. We forecast that the region's economy will expand by 5.5% in 2014 and 5.8% in 2015 as growth picks up in several Central African states. BMI stresses, however, that growth in the Central African bloc will be slower than that in the XOF-using Western states, and that the entire region will perform poorly by African standards.

If taken together, the two currency blocs of West Africa's franczone have a combined economy that is a third larger than Angola's. If French-speaking Guinea is included, the region's population is only just less than that of Nigeria, while total exports are nine times larger than those of Kenya. Rapid mining growth, higher-than-expected oil production, and rising consumer spending have led BMI to upwardly revise our forecasts for countries across the region, where we see growth accelerating over the coming years.

A Contender?
Francophone West Africa

Despite this positive momentum, however, BMI expects growth in both the Western Union Économique et Monétaire Ouest-Africaine (UEMOA) and the Central Communauté Économique et Monétaire de l'Afrique Centrale ( CEMAC ) to underperform their African peers. With few exceptions, poor governance, undiversified economies, and cripplingly poor business environments will depress growth across most franczone states.

We predict that 2013 will see only four Francophone West African economies - Côte d'Ivoire, Burkina Faso, Niger, and Guinea-Bissau - grow faster than the average for Sub-Saharan Africa, excluding South Africa. Per capita incomes, which are already among the world's lowest, will see little real-terms growth.

Forecast Revisions: Some Reason For Optimism

Since our last outlook, BMI has upwardly revised our 2013 real GDP growth forecasts for Chad, Côte d'Ivoire, and Equatorial Guinea. The largest upgrade was for Chad (2.5 percentage points), where higher-than-expected oil prod uction is s upporting relatively elevated growth. Senegal, Cameroon, Gabon, and Guinea all saw their growth outlooks cut, but none by more than 0.6 percentage points. The impact of these changes was minor , but led to slightly higher growth forecasts for both UEMOA and CEMAC.

Coming Up In The World
Francophone West Africa - Real GDP Forecasts, Previous & Revised

The revisions did not , however, affect our core view that CEMAC will grow substantially more slowly than UEMOA, and that both blocs will perform worse than their economic peers across Sub-Saharan Africa (SSA). Even the fastest-growing CEMAC state (Congo-Brazzaville) see real GDP growth of only 6.0%, lower than the 6.4% expansion that we are forecasting for UEMOA as a whole. Only two UEMOA states (Benin and Senegal) will experience growth below the 3.9% that we forecast for CEMAC.

First Among Equals?
Francophone West Africa - Nominal GDP, US$bn

While there are several reasons why UEMO is growing faster than CEMAC, an obvious one is that the Western bloc is being buoyed by the strong economic performance of Côte d'Ivoire, the fastest-growing economy in Francophone West Africa. The country, wh ere BMI predicts that GDP will grow by 8.7% in real terms in 2013, is the largest economy in the entire franczone, and makes up just over a third of UEMOA's total GDP. The bloc's slower-growing economies, such as Benin and Togo, are much smaller, meaning that their domestic economic problems have little impact on UEMOA's headline growth.

In CEMAC, on the other hand, the bloc' s largest economy is less dynamic . BMI predicts that real GDP growth in Cameroon will be just 4.9% in 2013 . The only high-growth economy in the bloc is Congo-Brazzaville, CEMAC's fourth-largest when measured by GDP. Rapid expansion in Congo-Brazzaville is largely offset by the fact that Equatorial Guinea's economy - the community's third largest - is contracting.

Poor Business Environments: A Major Stumbling Block

Across both blocs, however, BMI identifies weak business environments as a key obstacle to both faster headline growth and the diversification of economies which remain heavily dependent on extractive industries. While the weakness of consumer-led growth in the region is partially due to very low incomes, we believe that difficult business environments have hindered the establishment of a healthy private sector.

Difficult Place To Set Up Shop
Francophone West Africa - Opening A Business, Procedures (LHS) & Days (RHS)

Across the region's 15 states, the World Bank reports that it takes an average of 7.7 bureaucratic procedures to register a private company . Fulfilling these requirements takes over three weeks in most countries, and over four months in Equatorial Guinea, where all new companies need authori s ation from the prime minister's office. Regulatory hurdles are most onerous in the oil-exporting CEMAC countries, but also difficult to manage in even the most business-friendly UEMOA states.

Even in states with relatively streamlined registration processes, fees are often prohibitive; registering a new business in Mali costs twice the country's average per capita income. Evidence from Transparency International suggests that most franczone countries struggle with high levels of corruption, meaning that these processes are likely even costlier in practice than they appear on paper.

These bureaucratic and financial obstacles have hindered the development of legally-registered private firms in most Francophone West African states. Data gathered by the World Bank and the Kaufman Foundation suggest that just 1,306 new businesses were officially incorporated in Senegal in 2011 and only 398 in Togo. In Rwanda, one of Africa's most impressive economic reformers, the figure was 4 , 627, while Ghana - which is admittedly a larger economy - managed 15,649. Mali was the franczone's sole outperformer on this measure, registering 94,050 new firms established in 2011 .

A paucity of new business registrations may indicate one of two things about the region's economies; either that consumer demand remains low, or that entrepreneurs are avoiding burdensome bureaucracy by operating in the informal sector. BMI expects that both factors are likely at play.

First, l ow incomes and widespread poverty mean that populations in the region have little disposable income. This has hindered the development of consumer-facing businesses such as restaurants, shops, and transport services. Economies are heavily focused on extractive industries and agriculture, with hotels, restaurants, and wholesale trade making up a small share of GDP . The failure of a thriving commercial sector to develop will contribute to slower headline growth, as well as higher unemployment , and slower poverty alleviation.

Second, BMI believes that a small fraction of business owners in many Franczone states are registering their companies, with many preferring to work in the informal sector. While this is common across much of Africa - and in other developing regions - the failure of Francophone West African states to expand the reach of their formal sectors will cost governments much-needed revenue and slow the expansion and diversification of the economy.

Bottom Of The Table
Francophone West Africa - BMI Business Environment Ranking

These challenges are also captured on BMI 's proprietary Business Environment ratings, which rank countries from 0-100 on the basis of their infrastructure, institutions, and market orientation. Not only does every country in Francophone West Africa score worse on the measure than Ghana, all but three states perform worse than the occupied Palestinian territories.

While states from both currency blocs score poorly, CEMAC economies make up three of the bottom four places. As on the World Bank measure, Senegal performs best among the 15 Francophone states. Unlike most of its regional peers, Senegal has a diversified economy which is not based on a single resource or extractive industry. This makes having a welcoming business environment key if the country is to attract business and investment.

All Over The Place
Francophone West Africa - Business Environment ranking (x), 2013-2017 Real GDP Growth (y), Nominal GDP (size of buble)

Indeed, when we compare BMI 's business environment ratings with our 2013-2017 real GDP forecasts, the only countries with poor business environments that are able to sustain rapid economic growth are resource-based economies where investors are relatively isolated from the domestic economy. Niger, Chad, and Congo-Brazzaville are all examples of this extractive industry-based growth. Broad-based growth is occurring in Senegal and in Côte d'Ivoire, two countries that score highly on our business environment ranking.

Perhaps the clearest example of business environment affecting growth is the gap between Gabon and Equatorial Guinea, two energy-exporting economies experiencing declining oil production. In Equatorial Guinea, the government has failed to diversify the economy, and we predict only marginal growth over the coming years. In Gabon, however, investment in the mining, forestry, and palm oil industries will push real GDP growth to 4.4%.

BMI Macroeconomic Forecasts
2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI/UN/IMF/AfDB/National Sources (Note: f = BMI forecast)
UEMOA
Benin
Nominal GDP, US$bn 6.6 6.6 7.3 7.3 8.2 8.4 8.7 9.1 9.7
Real GDP growth, % change y-o-y 2.7 2.6 3.1 3.5 3.8 4 4.1 4.3 4.4
Consumer price index, % y-o-y, ave 0.9 2.1 2.7 6.5 3.1 2.8 2.8 2.8 2.8
Budget balance, % of GDP -4.9 -2.5 -3.2 -4 -3.5 -2.9 -2.1 -1.5 -1
Current account balance, % of GDP -8.9 -6.9 -9 -8.6 -8.1 -8.5 -8.8 -8.9 -8.9
Burkina Faso
Nominal GDP, US$bn 8.4 8.8 10.1 10.6 12.1 12.6 13.3 14.1 15.4
Real GDP growth, % change y-o-y 3.0 7.9 5.1 8.0 7.3 6.9 6.9 6.9 6.9
Consumer price index, % y-o-y, ave 2.6 -.6 2.7 3.6 2.2 2.0 2.0 2.0 2.0
Budget balance, % of GDP -4.7 -4.5 -3.4 -3.2 -2.2 -2.6 -2.7 -2.6 -2.5
Current account balance, % of GDP -4.5 -3.2 -.9 -4.9 -4.0 -3.4 -2.9 -2.6 -2.2
Côte d'Ivoire
Nominal GDP, US$bn 23.2 23.0 24.1 25.6 30.7 33.1 36.2 39.3 43.8
Real GDP growth, % change y-o-y 3.8 3.0 -4.7 9.8 8.7 8.2 8.0 7.9 7.9
Consumer price index, % y-o-y, ave 1.2 1.8 4.9 1.3 3.1 2.6 2.6 2.6 2.6
Budget balance, % of GDP -1.6 -2.0 -6.4 -3.1 -3.3 -3.1 -2.9 -2.8 -2.6
Current account balance, % of GDP 7.0 1.1 6.7 -2.8 -3.3 -3.4 -3.6 -3.9 -4.1
Guinea-Bissau
Nominal GDP, US$bn .9 .8 .9 .8 1.0 1.0 1.0 1.0 1.1
Real GDP growth, % change y-o-y 7.9 1.6 4.3 -2.1 6.6 3.6 3.4 3.2 3.2
Consumer price index, % y-o-y, ave -1.7 2.5 5.1 2.1 3.5 3.2 3.2 3.2 3.2
Budget balance, % of GDP 2.8 -.2 -1.4 -3.6 -2.4 -1.4 -1.5 -1.4 -1.3
Current account balance, % of GDP -4.3 -7.9 -7.2 -7.7 -6.7 -5.1 -5.0 -5.1 -5.1
Mali
Nominal GDP, US$bn 9.0 9.4 10.6 10.0 11.3 11.7 12.3 13.0 14.1
Real GDP growth, % change y-o-y 4.5 5.8 2.7 -1.7 4.5 5.1 4.9 4.7 4.7
Consumer price index, % y-o-y, ave 2.2 1.3 3.1 5.2 2.7 3.0 3.0 3.0 3.0
Budget balance, % of GDP -4.6 -2.9 -5.3 -1.2 -2.3 -2.3 -3.6 -3.1 -2.5
Current account balance, % of GDP -7.3 -7.5 -5.5 -5.4 -11.0 -16.1 -18.6 -20.9 -20.6
Niger
Nominal GDP, US$bn 5.4 5.7 6.4 6.6 7.6 7.9 8.4 9.0 9.9
Real GDP growth, % change y-o-y -.7 8.2 2.3 11.0 7.2 6.6 5.8 6.5 6.3
Consumer price index, % y-o-y, ave 1.1 .9 2.9 3.3 2.0 3.0 3.0 3.0 3.0
Budget balance, % of GDP -5.3 -2.4 -3.5 -4.4 -3.9 -5.8 -5.6 -5.1 -5.0
Current account balance, % of GDP -24.3 -20.2 -27.7 -23.5 -19.4 -19.4 -18.6 -17.3 -15.5
Senegal
Nominal GDP, US$bn 12.9 12.9 14.4 13.9 15.4 15.7 16.2 16.9 18.1
Real GDP growth, % change y-o-y 2.1 4.1 2.8 3.6 3.8 4.2 4.6 5.0 5.2
Consumer price index, % y-o-y, ave -1.7 1.2 2.7 1.4 1.7 1.7 1.7 1.7 1.7
Budget balance, % of GDP -4.7 -4.9 -6.6 -6.5 -6.1 -5.8 -5.7 -5.5 -5.4
Current account balance, % of GDP -6.6 -6.7 -7.4 -8.9 -8.0 -8.1 -7.9 -7.7 -7.2
Togo
Nominal GDP, US$bn 3.2 3.2 3.7 3.7 4.3 4.6 4.9 5.3 5.8
Real GDP growth, % change y-o-y 3.4 4.0 4.9 5.0 4.7 4.9 5.0 5.0 5.0
Consumer price index, % y-o-y, ave 2.0 .4 3.6 5.0 5.8 5.2 4.8 4.2 3.8
Budget balance, % of GDP -3.0 -2.8 -3.6 -5.5 -7.4 -5.2 -4.5 -2.8 -2.2
Current account balance, % of GDP -5.6 -7.2 -7.3 -8.6 -8.0 -7.5 -7.4 -7.2 -7.0
CEMAC
Cameroon
Nominal GDP, US$bn 23.6 23.6 26.4 26.1 29.6 30.5 31.9 33.1 35.3
Real GDP growth, % change y-o-y 1.9 3.2 4.1 4.5 4.9 4.9 5.0 3.7 3.7
Consumer price index, % y-o-y, ave 3.1 1.3 2.9 2.7 2.2 2.5 2.5 2.5 2.5
Budget balance, % of GDP .0 -1.1 -2.7 -2.3 -2.9 -1.9 -1.5 -1.6 -1.8
Current account balance, % of GDP -4.7 -3.6 -2.7 -3.3 -3.4 -3.6 -3.0 -3.4 -3.8
The Central African Republic
Nominal GDP, US$bn 1.8 2.0 2.0 2.3 2.5 2.5 2.7 2.8 3.0
Real GDP growth, % change y-o-y 1.7 3.0 3.3 4.0 3.9 5.0 5.0 5.0 5.0
Consumer price index, % y-o-y, ave 3.7 1.5 1.3 6.0 1.5 2.5 2.5 2.0 2.0
Budget balance, % of GDP .1 .3 .3 .2 -.1 -.8 -1.6 -1.7 -1.7
Current account balance, % of GDP -8.8 -9.8 -8.4 -6.9 -7.2 -7.4 -7.5 -7.5 -7.4
Chad
Nominal GDP, US$bn 7.6 8.9 10.4 10.7 12.4 13.7 15.2 16.4 17.9
Real GDP growth, % change y-o-y 4.1 14.6 3.6 6.5 4.9 9.0 5.4 3.9 3.1
Consumer price index, % y-o-y, ave 10.1 -2.1 1.9 7.5 1.5 3.0 3.0 3.0 3.0
Budget balance, % of GDP -10.3 -7.3 -6.2 -5.3 -4.0 -3.0 -2.1 -1.4 -.6
Current account balance, % of GDP -3.7 -.6 2.6 -8.8 -3.4 -1.1 .6 -.7 -1.1
The Republic of the Congo (Congo-Brazzaville)
Nominal GDP, US$bn 7.5 10.9 12.3 14.3 16.2 16.6 20.2 21.2 23.5
Real GDP growth, % change y-o-y 7.5 8.7 4.5 3.7 6.0 5.2 15.5 3.9 5.4
Consumer price index, % y-o-y, ave 4.3 5.0 3.0 3.9 3.5 3.2 3.1 3.0 2.9
Budget balance, % of GDP 5.6 17.9 17.9 1.0 4.9 2.2 -.4 -.9 -2.2
Current account balance, % of GDP -10.9 -4.4 -2.3 -1.4 -1.7 -7.5 -12.4 -9.7 -6.2
Equatorial Guinea
Nominal GDP, US$bn 9.1 11.9 15.0 16.6 17.5 17.6 17.3 17.0 17.8
Real GDP growth, % change y-o-y 4.6 -.8 7.1 2.0 -1.0 1.1 -.3 -.5 .9
Consumer price index, % y-o-y, ave 4.7 7.8 7.0 6.1 6.5 6.3 6.1 5.7 5.6
Budget balance, % of GDP -9.8 -4.9 6.0 -3.6 -7.2 -4.1 -5.1 -6.4 -6.9
Current account balance, % of GDP -32.7 -33.7 -24.3 -20.3 -14.9 -14.0 -11.4 -10.9 -8.8
Gabon
Nominal GDP, US$bn 14.1 19.0 22.4 24.9 27.4 28.1 29.6 31.2 33.8
Real GDP growth, % change y-o-y -.4 5.6 5.8 5.4 4.2 4.3 4.3 4.5 4.5
Consumer price index, % y-o-y, ave 1.9 1.5 1.3 2.3 2.6 2.8 3.0 3.0 3.0
Budget balance, % of GDP 6.6 4.8 7.9 6.1 1.2 1.8 1.5 .9 .6
Current account balance, % of GDP 9.8 5.8 6.7 10.4 7.6 6.2 4.8 3.1 1.7
Other
Guinea
Nominal GDP, US$bn 5.1 5.3 5.3 6.3 6.8 8.2 9.9 11.1 13.1
Real GDP growth, % change y-o-y -.1 1.9 4.2 3.8 3.3 3.9 3.0 4.2 15.7
Consumer price index, % y-o-y, ave 4.8 15.4 21.4 15.3 10.3 7.3 6.0 5.9 5.9
Budget balance, % of GDP -6.2 -12.7 -2.7 -1.5 .9 .0 -.5 -.2 4.4
Current account balance, % of GDP -7.9 -6.1 -10.1 -11.5 -18.9 -25.1 -32.1 -49.1 -44.6

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