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The Economic Activity of Burkina Faso

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Burkina Faso is landlocked by six other countries and ranks amidst the poorest countries in the world. It has a low income and limited natural resources. Burkina Faso experienced a humanitarian crisis in 2012 when it received waves of refugees from neighbouring Mali. There was armed conflict in Mali and the country was extremely unstable.

Economic Overview of Burkina Faso

Burkina Faso’s growing population increases at an average rate of 3.1% a year and in 2018, the population reached close to 20 million. Burkina Faso’s economy is very reliant on agriculture, with close to 80% of the active population employed in the agriculture sector. The country’s most important cash crop is cotton, whilst gold exports have gained great importance over recent years.An instrument shop in Burkina Faso, Source

Burkina Faso’s financial system symbolises 30% of the country’s GDP and is governed by the banking sector, which accounts for 90% of financial system assets. Eleven banks and five other financial institutions operate in Burkina Faso.

The banking sector is very concentrated, with the three biggest banks possessing nearly 60% of total financial industry assets. Banks are generally sufficiently capitalized but remain weak due to their over exposure to the cotton industry, the prices in the cotton industry are subject to significant fluctuations.

Although most Burkinabe’s have not yet to benefit significantly from it, sound macroeconomic management, coupled with good cotton and gold exports, has enabled Burkina Faso to realise growth rates above 5 percent annually for the past six years. This improvement is also down to its increased investments in the country’s infrastructure. In spite of this, public finances have significantly deteriorated.

The GDP per capita of Burkina Faso has changed massively in the last 50 years. It went up by 13% in the Sixties and hit a peak growth of 237% in the Seventies. But this was unmaintainable and the growth reduced to 23% in the Eighties. Finally, it reduced by 37% in the Nineties. In 2017 Burkina Faso had an estimated average income purchasing-power-parity (GDP) per capita of $1,900.

Even though tax revenues have increased, it has not been sufficient enough to offset rises in the wage bill, current transfers and public investments. The economic deficit, which was 3.4% in 2016, expanded greatly in 2017 reaching an estimated 8.2% of GDP. This is the highest recorded in Burkina Faso in the last decade. The government amalgamated borrowing on the regional market and concessional aid in an attempt to offset the rise in fiscal spending.

Growth in Burkina Faso

Between 2017 and 2018 there has been a significant improvement in judicial effectiveness and smaller improvements in business freedom and property rights which has outweighed the declines in financial health, labour freedom and investment freedom.

Burkina Faso’s economic position remains positive in the short term, GDP growth is expected to stabilize around 6% between 2018-2020. The expected growth would be sustained by the services, agricultural and mining sectors and continuing public investment. This is obviously dependant on a stable political environment.

The external current account deficit is predicted to hold firm at 8% of GDP in 2018 and taper to 7% over the next two to three years. The economic deficit (including subsidies) is estimated to reduce to 5% of GDP in 2018 and come together in 2019 to meet the 3% target set by the West African Economic and Monetary Union.

Burkina Faso benefits from growth influences that can form the grounds of structural economic reform, including possibilities in agricultural ecology that are likely to quicken growth in the rural sector, especially on the country’s unused farmland. Despite leading Africa in cotton, Burkina Faso handles less than 1% of its production; massive potential lies in industrial cotton processing. Burkina Faso also has large, untapped solar resources that could make sure of the conversion to renewable forms of energy.

Industry is still in the very early stages in Burkina Faso. Manufacturing seems to be limited to fabrics, food processing and other import substitution heavily protected by tariffs. Some factories are owned privately and others are primed to be privatised. Burkina Faso's natural resources are limited, although a manganese ore deposit was located in the remote northeast of the country. Gold mining has increased massively since the mid-eighties and along with cotton, is a leading export money maker. However, gold and cotton have both been listed as goods produced mostly by child labour and forced labour according to a recent U.S. Department of Labour report.

Water tower in Burkina Faso, Source

Human Development in Burkina Faso

Burkina Faso has made obvious improvements in recent years but despite this, child and maternal health indicators have not reached the targets set in the development goals of the United Nations and the National Economic and Social Development Plan. The maternal mortality rate compared to live births ratio dropped from 484 per 100,000 in 1998 to 330 in 2016, however between 2014 and 2015 the use of contraceptives declined from 34.3% to 31.1%.

The under-fives mortality rate compared to live births ratio also fell from 129 per 1,000 to 81.6, whilst the neonatal mortality rate fell from 31 per 1,000 in 2003 to 23.2 per 1,000 in 2015. Also, infant mortality rates fell considerably, from 90 per 1,000 in 1998 to 43 per 1,000 in 2015 and life expectancy has risen to 60.3years.

In spite of a descending trend, malnutrition is still endemic, with a level of acute malnutrition of 7.6% in 2016 compared to the 1998 level of 15.5% and a 2016 stunted growth level of 27.3% compared to 34.6% in 1998.

Even with socioeconomic programmes being implemented to help improve youth unemployment, education and healthcare, the youth literacy rate, which was 28.7% in 2010, stays lower than the average Sub-Saharan rate of 71%. Just 35.4% of students finish primary school with the required competency level in mathematics and reading, this is even lower for lower secondary schools and upper secondary schools at 16.2% and 11.2% respectively.

The poverty rate dropped slightly between 2009 and 2014, from 46% to 40.1%. Earlier reforms have resulted in some poverty reduction but weak rule of law and systemic weaknesses in protection of property rights still hinder development of a more dynamic entrepreneurial environment.

Challenges in Burkina Faso

The capital city, Ouagadougou, suffered a third terrorist attack in March 2018 when eight Burkinabè soldiers were killed. Burkina Faso has suffered an increasing number of terrorist attacks in the last few years and this is the same for the entire subregion in general. Two previous attacks happened in Ouagadougou in January 2016 and August 2017.

Burkina Faso is susceptible to major internal and external risks. Externally, risks relate to changes in rainfall patterns affecting farming and the instability of gold and cotton prices and oil import charges. Internally, the threat of civil unrest and terrorism could impact on government revenue, the mining sector and tourism. The country’s economic and social development will, in part, be dependent on political stability, its openness to worldwide trade and export expansion.

Terrorism brings the most serious risk. Since 2015, Burkina Faso has been subject to a series of terrorist attacks that have killed more than 70 people and slowed the economic recovery. The government has begun to restructure the military to respond more effectively to security problems. As the threat of terrorism in the Sahel is ongoing, the challenges will continue to heavily effect the country’s socioeconomic position, especially public finances.

The Mossi Plateau, in north central Burkina Faso, faces infringement from the Sahara. The Sahara’s southward migration means intensified competition for control of extremely limited water resources. Most of the population try to make a living as farmers, living with problems of climate, soil erosion and basic technology.

A three-year International Monetary Fund program (IMF), sanctioned in 2013, was completed recently. Discussions are ongoing for a new program. Long-term challenges that Burkina Faso face include partisan insecurity in neighbouring Mali, undependable energy supplies and inadequate transportation links.

World Bank Support

The National Economic and Social Development Plan 2016-2020 totals approximately $26.3 billion. $3.8 billion was pledged by The World Bank Group to help fund the plan. Financial agreements for key sectors of the 2018 fiscal year have already been signed by The World Bank, including $75 million for reforms in the public finance and energy sectors.

The World Bank Group completed a Systematic Country Diagnostic of the social and economic situation in Burkina Faso. The Bank organised discussions with development stakeholders including representatives from the private sector, the Government, civil society and donors, in an attempt to identify priorities of its future partnership framework with Burkina Faso covering the period of 2017-2022. The new framework, supporting Burkina Faso’s development plan, will be submitted to the Board of Directors of the World Bank in 2018.

22 national projects, 7 regional projects and 6 trust fund operations are currently financed by The World Bank. Burkina Faso’s government is organising donor activities and has established Sector Dialogue Frameworks. The National Plan for Aid Effectiveness has now been replaced by the National Plan of Action for Effective Development Cooperation.