this blog is spored BY reflex Eco Group
VENTURES AFRICA – Almost five years after the start of the global recession, the International Monetary Fund (IMF) characterizes the global recovery as “shaky” and “vulnerable,” particularly in the Eurozone. Sub-Saharan Africa is another story. In 2012, nearly a quarter of African countries grew at 7 percent or higher. One of those countries, Burkina Faso, grew more than 10 percent in 2012.
Back in February 2011, Burkina Faso experienced a series of protests across the country. The conflict in Cote d’Ivoire caused grave economic disturbances upon Burkinians. A trade union protest raised further questions about the viability of the economy. Demonstrations by students over a young man’s death in police custody wrecked vehicles and buildings across Burkina Faso’s capital Ouagadougou.
President Blaise Compaoré, caught by surprise with the crisis, immediately dissolved the government and named a new army chief. The new government implemented a three-month price-cut for staple goods such as rice, sugar and petrol. He then conceded a few major cabinet positions to trade unions. Analysits say the quick return to economic stability may be result from President Compaoré’s quick political remedies.
Turning the Economy Around
*Burkina Faso is a country situated in a complicated region. The eight-country West African Economic and Monetary Union (UEMOA) expanded by a paltry 0.8 percent in 2011. Burkina Faso grew by 4.2 percent in 2011. But the country could not escape the fuel and food prices hikes that increased consumer price inflation by approximately 3.8 percent in 2011. Current account deficits rose to 5.7 percent of GDP for the region in 2011, as a result of the higher fuel and food prices, lower worker remittances, and increased importation of goods.
The economic revival in 2012 may spell the beginning of even greater things for Burkina Faso. The IMF projects that the economy will expand by 7 percent per year until 2015, and hover slightly above the 6 percent mark thereafter. Inflation is expected to converge to an average of 2 percent over the medium term.
With debt hovering around 23.5 percent of GDP in 2012, the country remained vulnerable to macro-economic shocks. The government has made reducing debt a major policy issue for the next 5 years. A recent World Bank grant of $70 million should relieve some pressure and is interpreted as a positive sign of support for the country’s current efforts.
Tapping into the Opportunity
The mining sector in Burkina Faso is still vastly untapped. Gold production has skyrocketed to record levels in the past few years. As the 4th largest gold producer in Africa, in 2012 at 30.2 tons, Burkina Faso is expected to produce more than 40 tons of gold in 2013. According to the Ministry of Finance, the country earned more than $250 million from gold in 2012. The Bissa Gold Mine, operated by London-listed Nord Gold, opened at the beginning of 2013 and should further boost the export earnings.
When Minister of Mines and Energy Lamoussa Salif Kaboré is not extolling the virtues of the country’s gold deposits– something he says can be found ‘practically everywhere’ – the discussion turns to opportunities in diamonds and copper. Diamond prospects exist across the country but private investment is needed to properly assess and realize the potential. It is estimated that more than 80 million tons of copper reserves exist in the country. Other minerals, including zinc, uranium and lead are also important in this opportunistic yet opaque mining sector. A recent mineral prospecting survey initiated by the government with the support of the World Bank should bring more transparency to the sector.
Burkina Faso’s industrial sector is also in need of major investment. Compaoré’s is pursuing a policy of privatization, withdrawing the State from the sector and promoting private investment. The government is working anxiously to improve the industrial sector with upgrades to transport infrastructure and subsidies for manufacturers. Compaoré’s government has also considered improved tax incentives for investors in the near term.
Burkina Faso does not have conditions favorable to large-scale agricultural production, but the sector still provides opportunities for import substitution. Cotton production has greatly improved through technical assistance, better transport infrastructure and processing facilities. The sector still processes a meager 4 to 6 percent of Burkina’s cotton. If Burkina Faso is to decrease its trade deficit, it will have to improve local production and processing of other agricultural products such as rice and poultry. The government will likely have to partner with the private sector to achieve some of its agenda in this space.
Burkina Faso possesses a relatively well-developed transport network. Roads that link neighbouring countries (Benin, Cote d’Ivoire, Ghana, Mali and Niger), are tarred and, according to those familiar with the ride, reasonably motorable.
Burkina Faso and Cote d’Ivoire jointly own Sitarail, a transnational railway that was one of the first in Africa to be awarded as a concession to the private sector in 1995. The railway links Abidjan via Bobo-Dioulasso and Ouagadougou. Rail projects between Burkina Faso and Niger and Burkina Faso and Ghana are near term possibilities
Air transport, via Ouagadougou international airport, to other major cities and international cities has greatly improved through the services of major international carries, such as Ethiopian Airlines, Air France and Royal Air Morocco. Burkina Faso’s Minister of Transport Ibrahim Traore, a participant in this year USAID-UEMOA road governance initiative, is hoping that greater efforts to combat bribe solicitation and expand air transport infrastructure will lower costs and boost trade.
Local power generation has improved but still has a long way to go. Construction of thermal power plants and the introduction of solar power plants, under legislation to promote “Build-Operate-Transfer” (BOT) projects, provide additional opportunities to investors.
Demand increases at approximately 10 percent each year and current electrification is estimated about 15 percent of the population. Recent estimates by the African Development Bank (AfDB) suggest that power production capacity could meet peak demand by 2018. However, rapid growth in the mining sector could make meeting demands difficult.
Telecommunication capabilities in Burkina Faso are limited by power issues. Mobile penetration, at approximately 50 percent to 55 percent, is still below the average for Africa while 1.5 percent of its populations have access to the Internet. Despite the low numbers, the country is still experiencing aggressive growth. One mobile operator claims that subscriptions are growing north of 30 percent per year. According to a report by Deloitte and GSMA, a boost of 10 percent in mobile penetration in Burkina Faso could generate about 4.3 percent growth in GDP per capita.
Why Invest Now
A new mining code – recently adopted by the Council of Ministers of Burkina Faso this past month – could transform the economy and guarantee more money for local development. The creation of a mining fund for local development and fund for protection and rehabilitation of the environment is a good start to greater social change.
Human capital is growing as individuals return from neighbouring countries. Anxious young Burkinians seek opportunities across the country to display their skills.
The Chinese participation in infrastructure projects across Africa is well documented, but due to a lack of diplomatic relations, China plays a minimal role in the country. According to some investors, China’s absence in Burkina Faso can be good and bad. For example, it translates into less competition in mining. But annual FDI at 0.1 percent of GDP is a dampening effect from a lack of Chinese participation.
Economic policy should continue to improve and consequently boost FDI. Also, structural reforms should further reduce constraints to business.
Today may seem early for investment in the country. But, in the story of Africa’s growth, tomorrow could be Burkina rising.