Dahomey - The economy

RESTRICTED Report No. AF-25a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE ECONOMY OF DAHOMEY October 29, 1964 Department of Operations Africa CURRENCY EQUIVALENTS Unit: Franc de la Communaut' Financière Africaine (CFA franc) 1 CFA franc = U. S. $0. 004 247 CFA francs = U. S. $1 1 million CFA francs = U. S. $4, 051 50 CFA francs = 1 French franc TABLE OF CONTENTS MAPS Page BASIC DATA SUMMARY AND CONCLUSIONS I. THE INTRODUCTION .................................... 1 II. POLITICAL BACKGROUND ................................ 2 III. THE ECONOMY ......................................... 3 a) Production ............................... 4 b) Basic Services ...................... 7 c Internal Finance ........................... 9 (i) The budget ........................ 9 (ii) Investment ........................ 10 (iii) Money and Credits ................. 11 (iv) Foreign Trade and Payments ........ 13 IV. PROSPECTS AND CONCLUSIONS ............................ 14 STATISTICAL APPENDIX DAHOMEY T R ANSPORTATION N G E R LO Nigen- DAHOMEY - oblin KCouandée NMkk -.44w 0 k o nQdo PAVD RODSD LATERITE ROADS P.b4 Soki -IDROJECTD RA1LWAS 0 600 L200 LOM 24(0 3 000 XAPRTS XL0k RTO NOVO ° A TL A N Ti C 0 C E A1 JUNE 1964 IBRD - 1346R DAHOMEY AGR ICULTURE Ný1 G F [R Al-RICA ndI 1ý3To lele ON Jting9u Ka d G 900 O 0 00 ,000 0/,00 0 0 ~OO cE le, 24/,/OO0 9 U 000 ,00 1000Stc ra in l'000 a o0 Sh-e-nt 800Ri 900 1/00 40 ý00/ o ,2OO h, 0 90 sd 4téO 1,200- Annua r infiijl 0 6oo 1200 iso_40 sooA0m K L 0 e E E Rs 9 0 d/ JUNE i964l !BRD -.13 4å P BASIC DATA Area: 45,000 square miles - 117,000 square km. Population: (as of 1961) Total 2,300,000 Rate of growth (1960-61) 2.8o Total non-African population 2,000 Density of total population 20 per sq. km. Political Status: Independent since 1960 Membership: Bank - July 10, 1963 IDA - September 16, 1963 Total GDP (as of 1959): in local currency 34.3 billion in US 4p equivalent 140 million % of GDP from agriculture 58% 6 of GDP as of 1959 Gross investment 18% Savings 8;/ Exports 8 Total Government Current Revenues 10% Total money supply (including sight deposits) 18% Per Capita GDP as of 1959: at present exchange rate '70 Currency: CFA franc Value in dollars US 30.00h Total currency and coin in circul- ation 3.5 Total money supply (including sight deposits)(as of December 1963) 5.9 billion Monetary area Part of CFA franc zone - Banque Centrde Public Finances: des Etats de l'Afrique de 1'0uest Latest Budget as of 1963 (estimates) in billion CFA francs Current receipts 5.5 Current expenditures 6.6 Current deficit -1.1 Total Budget Investment Expenditure 0.2 in US 4 equivalent Total external debt (December 1963) 13 million Total annual debt service (Dec. 1963) 0.4 million Debt Service Ratio as of Total Exports 4% - 2- Foreign Trade (as of 1962): in US I equivalent Total exports 11 million Total imoorts 27 million External Assistance: in US Q equivalent Since 1960 (as of 1963) Source Total Made Total Total Available Committed Disbursed in million US' FAC (Sept.1963) 29 29 19 FED (Sept.1963) 18 18 3 Germany 3 3 - US (Aug.1963) 4.7 4.7 1.4 Foreign Exchange Reserves as of November 1963 W9.5 million IMF Quota and Position as of December 1963(undrawn) 17.5 million - Held on behalf of Dahomey by Central Bank of West Africa. Summary and Conclusions 1. Basically, Dahomey is an agricultural country. Production for the market and export is relatively small and consists mainly of palm kernels and palm oil. Cotton production for export has recently begun in the North. The Government is concentrating its efforts on the promotion of oil palm, cotton and livestock development. The industrial development is hampered by the absence of managerial and technical skills and a small domestic market. 2. Unemployment is a serious problem. It is aggravated by the return of Dahomans who served as civil servants in the medium and lower echelon of the administration or as workers in comWrce in many other French- speaking African countries. Since independence the Dahomans have been forced to return home. The difficulties of finding employment for the repatriates are a source of political and social instability. 3. Deficits in foreign trade occur regularly, financed by the large volume of aid. Over the 1958-1962 five-year period, exports declined sharply whereas imports rose. The financial situation of Dahomey has always been, and remains difficult owing to the economic stagnation and the failure to implement budget policy. The Central Government's budget has shown substantial deficits every year. 4. Investment has been financed with foreign aid; before independence with French aid exclusively and since independence primarily with French and Common Market aid. There has also been, since independence, a small amount of US and West German aid. Most of the aid has been on soft loan terms or outright grants. A four-year development plan was prepared for the 1962-65 period by foreign consultants, providing for a minimum total investment of CFA francs 36 billion. This plan has not been put into effect. 5. Despite the present economic and financial situation, the country has long term potential growth prospects in various sectors of agriculture and in the fishing industry. Should the political climate improve and the government concentrate all its energy on improving economic and financial affairs, there are reasonable prospects for economic growth in the future. Dahomey has relied heavily on foreign aid for financing its development pro- jects. If the country is to have much chance of development, it is likely that it will continue to need foreign aid for many years to come. Although the burden of foreign debt is not important, it is clear that with its difficulty in meeting current expenditures Dahomey will not be able to in- crease the burden of its external debt very much. To the extent it re- ceives external aid it should, as much as possible, be in the form of grants or on unconventional terms. THE ECONOMY OF DAHOMEY I. INTRODUCTION 1. Agriculture is the only resource of Dahomey and raising productivity in agriculture the principal prerequisite for achieving economic progress. Livestock in the northern part and fishing in the coastal lagoons are of some importance. There are no kno imineral resources with good prospects for com- mercial exploitation. Industry is small and to a large extent still handicraft. 2. Formerly, when a member of the Federation of French ,est Africa, Dahomer was the evacuation route for a relatively vast hinterland. decondly, Dahomans, who often have a good educational background and are experienced, served as civil servants in the medium and lower echelons or as workers in commerce and trades in many other French-speaking African countries. Indepen- dence and nationalism elsewhere are rapidly depriving the country of these two obvious advantages, thus adding to its already complicated development problems. 3. Dahomey has a transport network - roads, railways and a port under construction - which is more than adequate for the country's own present needs, an educational system from which more secondary school leavers graduate than can be employed locally at present and an administration, which is still short of executive and technical talent, but in which few foreigners remain. A shift from investment in basic services to investment in the productive sectors, and as far as education is concerned, from general to technical and vocational, appears urgent. In oractice it means a concentrated development effort in agriculture. 4. A development plan exists but there are no clear development policies. The plan was prepared by foreign consultants with little relation to the ability of the existing fragile administrative and planning structures to prepare for and carry through completion of individual programs and projects. Efforts to stimulate agricultural production through the establishment of peasant cooperatives have been largely deceiving. Production has continued to stagnate. Exports have actually declined. Consequently the Government's operating budget has shown large deficits which have been financed by grants- in-aid from France. To some extent, the difficult financial position has prevented the Government from coping effectively and immediately with the most pressing and politically most explosive problem, urban unemployment. 5. Iedged in between Nigeria to the Last, Togo and Uppor Volta to the West, Dahorney covers an area of approximately 45,000 square riles and stretches north froiii the Gulf of Guinea to the Niger River for almost 400 miles. Con- tacts with Europeans, the Portuguese and the French, began relatively early. Climate, vegetation and topography are typical of a country lying on the Gulf of Guinea, except that the dense rain forest whici usually follows the narrow strip of coastal lagoons has been destroyed almost completely over the last hundred years. Annual rainfall averages between 1,000 and 1,300 mm. in the coastal areas; temperatures and humidity are high and vary little over the year. Towards the north, the country shades over into wooded and open savannah with distinct dry and rainy seasons and rainfall declining to 700 mm. or less. - 2 - Altitudes rise gradually to about 1,000 feet in the Atacora massif which forms the water-shed between the Ocean and Niger River. The three major rivers, Oueme, Mono and Couffo flow towards the Ocean. 6. Total population is estimated at around 2.3 million increasing at a net annual rate of 2.8%. It consists of a number of ethnic groups, the more important distinction, however, is between the people of the South and those of the North. The ethnical dividing line corresponds with the northern limit of the Department of the Center. People in the South have been in contact with the outside world for quite some time. Environment is more favorable and making a living at a very humble level of subsistence is relatively easy. But the South is overpopulated and rural underemployment and urban unemployment are pressing problems. People of the South are in the majority and politically vocal. About two-thirds of the total population live in the South and about half of the total population occupies the southern- most edge of the country, accounting for less than 10% of Dahomey's total area. Urban population is estimated at around 230,000 of which some 180,000 live in the three southern towns of Cotonou, Porto-Novo and Ouidah. II. POLITICAL BACKGROUND 7. Dahomey gained independence from France in 1960 under former President Hubert Maga, who was leader of cne of the three parties which combined in 1961 to form the Parti Dahom4en de I'Unit4. Dahomey is a mem- ber of the Conseil de 1'Entente formed in 1959. It is a loose association between Dahomey, Ivory Coast, Niger and Upper Volta providing for periodic consultations between the four chiefs of state, which are supposed to cover such matters as the coordination of development planning, of policies in the fields of taxation, labor legislation, transport and communications. From a practical point of view the most important feature of the Entente is a Solidarity Fund, to which all four countries contribute but of which Dahomey, Niger and Upper Volta are net beneficiaries. Dahomey is also a member of the West African Customs Union composed of the countries of the former French West African Federation outside Guinea and Mali. Relations with France are governed by the Cooperation Agreement signed between the two countries in 1961 and covering finance, technical assistance, defense and trade as well as economic and cultural cooperation. 8. In October 1963 the labor unions forced President Maga to step down from the Presidency. The army took over briefly under army chief-of- staff Soglo. A referendum on constitutional reform and new elections were held in January 1964. The principal new feature of the revised Constitution is the division of executive power between a president and a vice-president. The new elections maintained the one-party system. Messrs. Sourou Migan Apithy and Justin Ahomadegb4 were respectively elected President and Vice- President. 9. The immediate reason for Maga's removal was the labor unions'dis- satisfaction with the Government's austerity policy and the Government's failure to take effective action to alleviate economic stagnation and urban unemployment. As above mentioned, this underemployment is aggravated by the return of Dahomans who worked in the other French-speaking African countries. The drifting back of Lahomans from these countries continues. Recently dispute over a border rectification with neighboring Niger, where a large group of emigrants still remained, resulted in a decision by Niger to expel all Dahomans. Many Dahomans are now seeking employment in Ghana and even in France. Furthermore, young university graduates now in France prefer not to return home. Finding employment for repatriates and for young school leavers is a problem which every Dahomey Government will have to face. It is doubt- fu, at least at this stagq tnat the change in government can rapidly improve matters in this regard. III. THE ECONO07Y 10. The economy of Dahomey is largely based on traditional agriculture. Livestock and fisheries are of scme imnortance. An estimated 85 6 of the oopulation are engaged in these activities which account for about 600 of domestic production. Most of it is of a subsistence type, excepting the production of palm kernel and of palm oil for export. Industry, which is still mainly handicraft, and construction account for another i0/, commerce, transport, administration and other services for most of the remaining 30z. 11. National account data are available only for 1959 and indicate for that year a gross domestic outout of CFA F34.3 billion which on a per capita basis was equivalent at the current exchan-e rate to almost U.S. :P0. These are rough estimates. The subsistence sector accounts for well over half of total output. Information on prices is rather fragmentary and often erroneous. Considerable uncertainty also exists regarding agricultural production, acreage, yields aLid consumption habits in the subsistence sector. Since 1959, economic growth has barely been able to keep up with the increase in population. Exoorts, of which palm kernels and palm oil account for about 65", have actually declined. 12. With the economy stagnating and emigration being cut off to a large extent, the creation of new employment opportunities has become one of the most pressing problems. Widespread undererployment in agriculture has to be accepted as unavoidable under present circumstances. People with some skills, reoatriates and young school leavers, were after independence absorbed by the administration and government services often in positions wellbulow their educational background. Urban development particularly in Cotonou and port construction still going on reduced the number of unemployed somewhat. But these Tjere at best temporary solutions. Permanent wage-earners, excluding Europeans. numbered about 25,000 in 1963, half of them in the administration and in government services and most of the remainder in construction, trans- port and commerce. Industry, including palm oil refineries, employed less than 4,000 people. The number of people with some skills seeking employment in Cotonou and Porto-Novo alone probably exceeded those permanently employed in the whole country. A typical feature of employment in the South is the number of women in retail trade, supplementing the low farm income of their usually large families. Europeans, mostly in commerce, banking, small in- dustries and government services number less than 2,000. 13. Investment and saving are still relatively low. Gross investment in 1959 was estimated at CFA francs 6.1 billion or 18% of GDP. But invest- ment in transport was unusually large in that year and estimates of invest- ment in traditional agriculture and housing accounting for over half of the total were probably over-valued. Since then monetary investment has declined and economic growth has been negligible. If estimates of non-monetary invest- ment were corrected, the rate of investment would now be probably in the vicinity of 10%-12% of GDP. 14. Mlonetary investment in the past was mainly in the public sector and was financed largely by grant-aid from France and since independence also by grant-aid from the European Economic Community, the United States and very recently by loans from Germany. Expressed in 1960 prices, investment aid by France under the large-scale postwar investment programs for overseas ter- ritories has been estimated at some CFA francs 16 billion (equivalent to ?64 million) during the 1948-58 period or CFA francs 1.5 billion (66 million equivalent) on the average per year. Since then aid commitments for invest- ment projects by France, the LEC and the United States have averaged some CFA francs 2 billion a year, to a large extent for linishing and rounding off investment projects and programs started during the pre-independence period. This high level of aid since 1959 is largely due to the construction of the sea port of Cotonou the cost of which is estimated to be more than 5 billion CFA francs. A large portion of the investment carried out during those years was for the transport system serving Dahomey and the hinterland of the former Federation of French -,est Africa. Investment in transport accounted for about one-third of total investment financed by France between 1948 and 1958. A considerable effort was also made for urban improvement and as far as production is concerned for replacing aging oil palms by improved selected oil palm varieties. Some re-afforestation took place. Foodstuff production benefited from somewhat more extension work, the intro- duction of better techniques and of selected seeds and planting material. However, follow-up of the investment effort in agriculture and setting-up of supporting services for the farmers was on the whole not satisfactory. a) Production 15. Agriculture is the principal activity of Dahomey. Palm kernels, palm oil, groundnuts, cotton, coffee and copra are produced for export and cassava, yam, maize and some sorghum for local consumption. Exports are mainly to France, where they have benefited so far from preferential treat- ment in various degrees. Cola nuts enter the barter trade with neighboring countries to the North. Available information on production and exports di not indicate any growth trend over recent years. Year-to-year variations, which can be fairly ,jide, are due chiefly to climatic conditions. 16. Almost 70'1 of the country's total area of some 11.3 million hectares are not cultivated or are wasteland. Large tracts of land are left fallow and not more than 500,000 to 600,000 hectares are cropped annually, mainly because of tribal land tenure and shifting agriculture. The majority of farmers is still engaged in subsistence agriculture and cash crops, with the exception of oil palm products, play only a minor role. Climatic conditions and soils differ from neighboring countries but are not to be blamed exclusively for the low level of agricultural output and productivity. Agricultural extension seems inefficient and the work of agricultural research carried out in a number of stations set up by the French is therefore to a large extent not passed on to farmers. Agricultural credit is extended by the government-owned Development Bank. 17. Production cooperatives have been set up recently according to a uniform pattern regardless of differences in crop, region and tradition and giving only limited freedom to individual members. The experiment has been disappointing so far. Marginal benefits derived from land consolidation following establishment of cooperatives are largely offset by deteriorating production due to poor management and hence low incomes for the members and little cooperation on their part. 18. The Government is concentrating its efforts on the promotion of oil palm and cotton and on livestock development. Most of the palm oil and palmkernels are now derived from wild palm trees. Consequently yields and oil extraction rates are low. Some 10,000 hectares have been planted with improved oil palm varieties over the last few years and the rate of new plantings is at present about 2,000 hectares a year financed by France and the EEC. New plantations already under production are run by cooperatives. The palm oil mills are managed by a government-owned company, the Societe Nationale des Huileries du Dahomey (SNAHDA), which handles also commercializa- tion and exports. Taking into account the efforts made to renew the planta- tions, one can reasonably assume an increase in the production of palm oil and palm kernel over the next few years. 19. Cotton cultivation is progressing particularly in the North. In the South farmers are still reluctant to expand acreage mainly because cot- ton cultivation requires considerably more work and effort than oil palm groves. Mrketing of cotton is now handled by an efficient private French company, the Compagnie Francaise pour le Developpement des Fibres Textiles (C.F.D.T.) and initial financing for expanding acreage and improving cultiva- tion is assured by France. Cultivation of cotton in the South as well as other crops, rice for instance, might be increased substantially if the re- alization of two major irrigation and flood control schemes along the Mono and Queme rivers can be carried out, provided adequate supporting services for the farmers would be established and reluctance to changing farming practices and land tenure systems could be gradually overcome. The Mono river project comprising about 150,000 hectares in Dahomey and Togo is now being surveyed by the U.N. Special Fund. It is worth noting that the carry- ing out of this study is the result of an agreement between Dahomey and Togo and that this agreement is a mark of the willingness of both countries to set up a coordination between their policies. The Oueme basin project covers approximately 100,000 hectares. A request for a U.N. Special Fund Survey is now being prepared with assistance from FAO. 20. Livestock is of importance in the North. Most of the herds are owned by nomads. Possibilities of commercial exploitation on a profitable basis are limited and in present circumstances accumulation of livestock offers -6- the best possible economic security for the nomad herdsmen. In the South livestock development has been held back by tsetse infestation. A small tsetse eradication and livestock improvement program is now being carried out with financial assistance by the United States. Total livestock popul- ation is estimated at around 330,000 head of cattle, some 600,000 sheep and goats and 3C0,000 hogs. Poultry is kept widely. 21. Fishing along the coastal lagoons is good. But fishing techniques and equipment are primitive. come 25,000 people are engaged in fishing and annual catches total some 30,000 tons. Most of it is consumed fresh in the densely populated South. Dried and smoked fish reaches the markets far in the North or is exported chiefly to neighboring Nigeria. The Government is trying to develop this activity along two main lines: (a) improvement of traditional fishing, (b) creation of fish industry in connection with the setting up of a fishing harbor in the new port of Cotonou. Fishing offers some possibility of growth. The efforts made by the Government in favor of traditional fishing seems promising. 22. Dahomey has no forests. Re-afforestation was started by the French and is carried on with further financial assistance by France and more recently by the United States. Some 5,000 hectares of teak have been planted so far. 23. Known mineral resources are few and none is exploited commercially at present. But mineral exploration has been rather superficial so far. Iron ore de,-osits have been located in The North at a distance of some 300 miles from the coast. 'hey have not been surveyed and extent and ore content are not known in detail. An important limestone deposit exists near Pobe some 50 miles from Cotonou, which could be used for cement production. But access to the quarry is difficult and is sometimes flooded. 24. Industry is still of minor importance and enterprises operating along modern technical and commercial principles are few. Poor and irregular supplies of raw materials, absence of managerial and technical skills and a small domestic market have been the main obstacles to industrial development. 1/ 25. SAIDA which operates the four existing oil palm refineries is the largest industrial enterprise. It was set up in 1961 as a government-owned company. Technical personnel is generally good but adequate management has been a problem. Total refining caoacity of the four oil mills is about 13,000 tons. The establishment of more oil palm mills is planned as new plantation blocks enter the production stage. A mill for palm kernels, prod- ucing 20,000 tons each of oil and cake, financed by a loan from Germany is now under construction. At present SAHDA owns and operates some of the plantations directly adjacent to its mills. But for the bulk of its supplies it depends on production by small holders and by cooperatives. Consequently organization of regular and sufficient sunplies and transport to the mills have been problems and the oil mills have never been able to 1/ Societe Nationale des Huileries du Dahomey. work at full capacity. At present they are working at barely 60% and oper- ation is not profitable. The government is considering reorganization of the oil palm sector, putting processing and production, at least of the new plantations, under one efficient management. 26. Other industries of some imoortance, mostly located in or around Cotonou, are in food processing and beverages, construction, car and mechan- ical repairs. Handicraft produces palm oil by means of small hand presses, construction materials, some textiles and metal goods. Among the larger industrial projects now under consideration are a cement plant and a medium- size cotton spinning and weaving plant. Small local demand and difficulties to export to neighboring countries leave some doubt about the economics of these two projects. Initially the Entente countries had decided among them- selves that Dahomey would concentrate on the production of cement using local limestone deposits. But the Ivory Coast and Niger decided to have their own cement plants and Dahomey has now joined Togo to produce and market cement for both countries. Consumption of both countries has been around 70,000 tons recently. The minimum capacity enabling competition with the imported product in the coastal regions is estimated at about 100,000 tons. b) Basic Services 27. Dahomey's transport system consists of about 6,200 km. of roads of which 3,500 km. are international and national roads and the remainder departmental roads and tracks which are not regularly maintained, of 579 km. of railway lines of which 438 km. for the main South-North connection from Cotonou to Parakou and a wharf at Cotonou able to handle up to 300,000 tons of cargo. The new port of Cotonou now under construction and expected to start operations in 1965 will be able to handle 400,000 tons of cargo at its four berths. The port is financed by France and the EEC and is expected to cost some US $24 million equivalent. -iith additional berths, capacity can be increased to 1.6 million tons. 28. Dahomey's transport system was conceived in the wider context of the Federation of French West Africa. Because of the political changes in the area the countries of the hinterland, Niger and Upper Volta in particular, are now likely to divert part of their traffic through Nigeria, Ghana and the Ivory Coast, respectively. Consequently, Dahomey's transport system hee.al- ready excess capacity which is in danger of increasing in the future. Oper- ation and maintenance of existing facilities are already a net burden to Dahomey. Many roads built fairly recently have deteriorated to such an extent owing to little or no maintenance, that they have to be rebuilt entirely over large stretches. Motorization is relatively heavy in the South; the total number of vehicles exceeds 9,000 of which one-third are trucks. 29. In 1959 Dahomey and Niger set up a common government organization, the Organisation Commune Dahomey-Niger (0.C.D.N.) responsible for the oper- ation of the wharf at Cotonou, the Dahomey railways and of Operation Hiron- delle, a system by which traffic from est and Central Niger is subsidized and channeled through Cotonou instead of taking the cheaper route through Nigeria. Delays in transporting goods over the Nigerian transport system and the need of the CFA franc area to save on transport expenditures payable - 8 - in foreign exchange iere the ma'n reasons for setting up Operation Hiron- delle some 10 years ago. Operational deficits of 0.C.D.N. are covered by the budgets of the two countries. In 1962 both Dahomey and Niger applied jointly for an EEC grant to finance rehabilitation of the Dahomey railway system and its extension into Niger. The economics of the project proposal are doubtful and its realization appears unlikely. Niger is reluctant any- way to continue Oberation Hirondelle and the future of 0.C.D.N. is uncertain at this stage. 30. Present cargo handled by the wharf is about 270,000 tons, having increased by about 8% over the last 10 years. The railways handle about 90,000 tons of traffic a year including almost 40,000 tons of transit traffic for Niger, most of it subsidized by Operation Hirondelle. Traffic has in- creased by about 20% over the last 10 years. Profitable operation of the railway system will require a minimum of 150,000 tons transported by the main South-North line. But present operation of the railways could be im- proved and profitability increased through a reduction of excess personnel. 31. The electric power sector is still small and limited to the supply of the four major towns, Cotonou, Porto-Novo, Ouidah and Parakou. Production and distribution is operated by a private concession company. SNAIDA supplies two other towns with some power. Power consumption in 1963 was about 16.5 million Kwh or almost double the volume reached in 1960. Industrial demand is small and most of the increase of demand was by the administration and households. Installed capacity will reach 7,000 KW by the end of 1964. Production is by srmall diesel units using imported fuel. Average price per Kwh is equivalent to US cents 8. To reduce costs of production, distribution and administration, Dahomey and Togo are considering setting up joint facilities serving both countries. They have requested the UN Special Fund to undertake preliminary studies. 32. Educational development has been largely limited to the South where priary and secondary schools have been in existence for quite some time. The number of children in primary schools exceeds 100,000 or 25% of those of school age. The rate of increase has been about 10% recently. In some regions of the South the rate of enrolment is already about 40% compared with 15% in the North. Private mission schools account for about 45% of total enrolment. Students in secondary schools, including technical and vocational, are almost 6,000 and those studying at universities abroad or taking post-graduate training are about 900. The number of primary school teachers with adequate training is relatively high. Less than 100 foreign teachers, mostly at the secondary level, remain in the public school system. 33. Administration and most government services are staffed by local people and few foreigners remain. The precarious financial situation has forced the government to limit new recruitment severely and repatriates and recent secondary school graduates have difficulties to find employment elsewhere. Foreign technical assistance personnel, including teachers were - 9 - about 200 in 1963, less than half their number in 1960. The greatest need is for people who have the necessary skills and competence to fill technical posts both in the administration and in the economy. While the number of secondary students exceeds 6,000, those in technical and vocational schools are less than 1,000. Particularly urgent is the need to train administrators, technicians and extension workers for agriculture with a good practical back- ground enabling them to work effectively with the farm population. c) Internal Finance i) The Budget 34. The financial situation of Dahomey has always been, and remains, difficult owing to the economic stagnation and the failure to implement budget policies strictly. 35. In the years immediately preceding independence France followed a policy of assimilation in all her African territories and classifications and salaries of government personnel were adjusted to levels which Dahomey in particular could hardly afford. After independence the government reduced salaries above a certain minimum, uniformly by 10%; it limited new recruitment to technical posts and suspended all promotions for a five-year period. But job-seekers were many and numerous exceptions were made. The total number of government employees and expenditures for salaries continued to increase. Government employees now exceed 10,000 and salaries account for over 75% of total operating expenditures of government departments. In other countries formerly associated with France salaries are usually less than 60% of operating expenditures. 36. Efforts to increase revenues from internal sources consisted mainly in raising tax rates. Taxes are largely based on imports, and raising rates almost automatically increases smuggling. The government therefore reversed its policy to some extent in 1962 and lowered the import taxes again on certain important consumer goods, mainly textiles, food products and some manufactured goods. The reduction does not appear to have affected revenues from import taxes adversely. 37. Current expenditures of the central government for 1963 were estimated at CFA francs 6.6 billion, an increase of about 45% over 1959 or some ll' a year. However, in that year many expenditures which now are included in Dahomey's budget were still financed directly by the Federation of French West Africa or by France. Now, the central government's budget reflects more accurately the operation of its services. Political subdivi- sions, districts and municipalites, have their own budgets fed by certain taxes and by subsidies of the central government, which cover administrative expenditures and maintenance of secondary roads and other basic facilities. France is contributing to the salaries of the French technical assistance personnel and is sharing in the cost of certain defense and air transport facilities. These contributions are outside the budget. This technical assistance by France for non-military purposes is estimated at some CFA francs 400 million a year. - 10 - 38. In th,. 1963 budr-et estimates, expunditures for --eneral admin- istration account for about 30/o of total expenditures, internal security and defense for 17,-, education, including scholarships and subsidies to private schools for 20%, health for 12%, agriculture, forestry and fishery services for 6% and debt service for 2/; expenditures for the transport sector - road maintenance, contribution to a road fund used for the minor new road con- structions and subsidy to 0.C.D.g. - account for 8%. 39. Government receipts from internal sources for 1963 were estimated at CFA francs 5.5 billion. Indirect taxes, in particular import duties, are still by far the most important sources of revenue, accounting for 7070 and 58% respectively of total government revenues. Direct taxes account for about 1% revenues from various government services for 770, fees and dues for most of the remainder. 4O. The central government's budget has shown substantial deficits every year. Direct budget support from France could not be reduced gradu- ally over the years as the government intended. Even after receipt of bud- get support from France and other sources, cash deficits still occurred. Actual results available for 1960-62 show that Dahomey's own revenues covered on the average only 60%" of current expenditures during tnose three years. Direct budget support from France was approximately CFA francs 1 billion a year. Additional budget support was obtained from the Solidarity Fund of the Intente and from the liquidation of the assets of the former Federation of French West Africa. So far cash deficits have been financed with treasury resources, presumably deposits with the postal checking system and amortiz- ation reserves of public and semi-public bodies. Financing through the Central Bank was not used; by law the government can borrow on short-term from the Central Bank 10o of estimated revenues in the previous year. The cumulative total of treasury advances exceeded CFA francs 2 billion at the end of 1962; they continued to increase in 1963. These advances are likely to be consolidated by special aid from France. In the following table the government budget is summarized. Government Budget 1959-63 (in billion CFA francs) 1959 1960 1961 1962 1963 1964 Actual Budget Expenditures 4.8 5.6 5.8 6.1 6.6 7.1 Dahomey's revenues 3.6 4.1 3.1 4.3 5.5 6.4 Deficit -1.2 -1.5 -2.7 -1.8 -1.1 -0.7 Grants-in-aid 1.0 1.2 1.5 1.2 1.1 0.7 Treasury advances 0.2 0.3 1.2 0.6 - - ii) Investment 41. Investment in the monetary sector, whether for infrastructure or for production, has been almost entirely investment by the government or by government-controlled enterprises such as O.C.D.N. or SAAHDA. The few - 11 - private enterprises in industry and coimerce have undertaken little new investment in the recent past. A,four-year development plan was prepared for the 1962-65 period by foreign consultants with not much participation by those responsible for its execution, and bearing little relation to the existing fragile administrative and planning structures. The plan provides for a minimum of CFA francs 21.6 billion of new investment in the monetary sector or some CZA francs 5.4 billion a year. Investment in the traditional sector was forecast at approximately CFA francs 14.4 billion. Total invest- ment in the economy was thus to amount to C7A francs 36 billion (US i166 million equivalent) over the four years of the plan. The rate of investment exceeds 20% of projected GDP which was expected to increase by at least 6.5% a year during the plan period to reach CFA francs 46.5 billion by 1965 compared with CFA francs 31.3 billion in 1959. The actual rate of increase of GDP has so far probably only in a few years exceeded growth of population which is 2.8%. L2. Regarding nonetary investment, the share of the productive sectors is increased in the plan from an average of less than 30 during the years preceding independence to about half of the total, and the share of invest- ment in basic economic and social services is reduced to 45% compared with 65% in previous years. The remaining 5;6 is for studies and surveys. The government expects new investment to be financed entirely from abroad, i.e. by France, the .ZC and the United States. In 1963 the net contribution by the Solidarity Fund of the Entente, which previously financed the current budget, was earmarked for the first time to the financing of government in- vestment. In view of the precarious budget situation it is unlikely that these funds (CFA francs 180 million) have actually been used for investment. Foreign aid coritments for development projects in recent years are sum- marized in the table below. Disbursement under these commitments averaged some CFA francs 1.8 billion in 1961, 1962 and 1963. 1/ Foreign Aid Commitments 1959-63- in billion CFA francs in y of total Production 2.0 17 Infrastructure: economic 1.9 16 social 1.D 13 Studies and Surveys 0.4 4 Port of Cotonou 6.0 50 Total 11.9 100 iii) Money and Credit 43. The monetary and banking system is simple and still closely linked to France. Dahomey is a member of the French franc zone and under the 1962 Agreement, setting up the "Union honetaire Ouest Africaine" it shares a common currency, the franc CFA, and a common bank of issue, the "Banque Centrale des Etats de l'Afrique de l'Ouest" with five other countries, Ivory Coast, Mauritania, Niger, Senegal and Upper Volta. Togo has joined these 1/ First half of 1963 only. - 12 - five countries recently as the sixth member country of the Union Monetaire. While the 1962 Agreement left the currency arrangements, notably the right to issue notes and the convertibility of the franc CFA into French francs at the present exchange rate, unchanged, it gave the individual member states a stronger representation and more influence in adapting credit policies to their own economic needs. National monetary committees review periodically the rediscount ceilings of local banks with the Central Bank. France, although still represented on the Board of the Bank, is no longer a shareholder and its main link and means of influence of the Bank is now the "operations account" which the Bank holds with the French Treasury and throuch which all foreign exchange transactions, including those in French francs, are settled. In case of prolonged deficits of the "operations account" France can request the Bank to increase rediscount rates and lower rediscount ceilings. 43. As elsewhere in West Africa, French banks are being replaced by national credit institutes. In the past, three French banks maintaining branches in Dahomey handled all commercial banking, while the Caisse Centrale de Cooperation Lconomique extended medium and long-term loans. One French bank has been transformed into a DAhonan institution, the "Societe Dahom6enne de Banque", the government holding the majority of its share capital. This Bank is rapidly becoming the most important commercial bank with more than half of total bank deposits and short-term credits. The Caisse Centrale has divested itself from its banking operations by setting up a specialized credit institute, the Banque Dahomeenne de Developpement (B.D.D.) in which it is, together with the government, the principal shareholder. B.D.D.'s share capital is CFA francs 200 million. It can accept deposits, but additional resources are provided mainly by medium and long-term advances of the C.C.C.E. Almost 70% of its lending has so far been for real estate and the remainder for agriculture and handicraft. Medium and long-term loans accounted for some 60% of the CFA francs 450 million of loans outstanding at the end of 1962. 441. The monetary sector is still relatively small and confined chiefly to the South. Monetary transactions may be estimated to account for about half of total transactions. The total money supply, currency and deposits, was estimated by the Central Bank for the first time at the end of October 1962 - before then data on currency circulation were only available for the Union Monetaire area as a whole - when it reached CFA francs 6.8 billion or approximately 18% of estimated GDP. Deposits with the banking and postal checking system, almost all short-term, increased over recent years to reach CFA francs 2.9 billion at the end of 1962. Bank credits are mainly for export and import financing and follow the rhythm of the crop year usually reaching a peak towards November/December. The committed credits amounted to some CFA francs 4.2 billion at the end of 1962. Bank credits increased slightly less rapidly than bank denosits over recent years. 45. Prices increased regularly over the last few years, mainly as a result of crop failures, higher taxes on imported goods and large mark-ups by local commerce. Margins of local commerce account on the average for 65% of the price of imported goods, or the price paid to the producer. - 13 - The government has taken steps to control excessive mark-ups and plans to set up a government-owned company competing with private commerce. Increases of wages and salaries were small and demands for adjustments by the trade unions, which the government refused to grant, precipitated the political crisis of October 1963. iv) Foreign Trade and Payments 46. Dahomey is an exporter of a few tropical agricultural products, among which palm kernels and palm oil are the most important. The country depends on foreign supplies for all industrial goods, fuel, textiles, many food products and construction materials. 47. Deficits in foreign trade occur regularly as would be expected with the large volume of external aid. They were particularly large during the last few years. Most crops failed in both 1961 and 1962; exports declined sharply whereas imports rose. Imports amounted to GFA francs 6.6 billion in 1962 and exports to CFA francs 2.7 billion or barely 40% of exports. Exports declined over the 1958-62 five-year period with fairly wide variations from year to year. They had reached CFA francs 3.4 billion in 1958. Imports increased regularly by about 10 a year over the same period. 48. Composition of exports has changed little over recent years, being almost identical on the average over the last 10 years, i.e. palm kernels and palm oil about 65%, groundnuts 15%, coffee 5%, cotton and fish each 3%, ooprah and shea nuts accounting for most of the remaining 9%. Composition of imports shows a steady share of about 20% for food products, with sugar the most important item, and a declining share for equipment goods and machines of 30% now compared with 40% in the years immediately preceding independence. Textiles accounted for 14% and petroleum products for 8% of total imports in 1962. 49. Smuggling of textiles and other consumer goods entering from neighboring Nigeria, has been important at times, presumably somewhat less now that Nigeria increased and Dahamey reduced tax rates on many imported consumer items. Cola nuts of which Dahomey is a large exporter enter the barter trade with countries to the North. As above mentioned Dahomey is a member of West African Customs Union. This Union was created by an Agreement of 1959. This Agreement provided for the free movement of prod- ucts and the abolition of customs duties inside the Union. As a matter of fact because of many derogations and by creation of indirect taxes instead of customs duties on imported products coming from countries inside the Union, the latter became more and more loose. Lstimates on total trade existing for 1959 show only minor discrepancies with official estimates for that year: imports were by about 5A and exports by about 106 higher than estimated officially. More reliable estimates for a larger number of years are unlikely to change the main feature of Dahomey's foreign trade, i.e. continued fairly large deficits. 50. France is the most important trading partner accounting for almost three-quarters of total exports and for over half of total imports. Bilateral trade and payment arrangements favored imports from France, while most agri- cultural exports benefited in various degrees from preferential treatment in - 114 - the French market mainly in the form of price subsidies. Total subsidy payments by France for palm oil, groundnut, coffee and cotton exports amounted to some CFA francs 300 million in 1960, gradually declining to CFA francs 160 million in 1963. In the case of palm-oil, price subsidies in the French market are to be replaced at least partially by subsidies of EEC under the terms of the Common Agricultural Policy for edible oils and fats. Where quotas exist, for coffee for instance, Dahomey was in recent years unable to use them fully and ceded part to the Ivory Coast. 51. Balance of payments data, including transactions with the franc area, are now available for one year, 1962; before data covered only trans- actions with non-franc area countries. These first global data are rough estimates to be refined subsequently. They distinguish only between trade, private current and capital and government current and capital transactions. Deficits on trade and private transactions of CFA francs 3.9 billion and CFA francs 1.7 billion respectively were balanced by a surplus, i.e. receipt of aid of mainly CFA francs 5.6 billion on government account. IV. PROSPECTS AND CONCLUSIONS 52. The present economic and financial situation of Dahomey is a subject for concern. The difficulties of managing current affairs have been many and the task of preparing for development has hardly begun. Should the political climate improve and should the government concentrate all its energy on improving economic and financial affairs, there are pros- pects for a reasonable rate of economic growth in the future and for ending financial dependence of the country on budgetary subsidies. 53. Shortly after independence Dahomey adopted a policy of rather strict budget austerity, but government and administration met difficulties in enforcing it effectively. To make room for local people Dahomey may have carried the replacement of foreign technical personnel too far, particularly as far as technical posts are concerned. Technical assistance not only for carrying out new investment but also for operation is probably even more urgently needed at this stage than pure financial assistance. S4. The main effort has to be made in agriculture. In the industrial field the most promising possibility appears to be the sharing of projects with neighboring countries. Dahomey has taken some initiative in that direction together with neighboring Togo. As far as mining is concerned, the search for minerals should be steadily pursued. 55. The low level of technical skills of the farm population and resistance to changes in farming practices and land tenure are formidable obstacles to the development of agriculture. The building up of adequate sup- porting services able to reach the farm population effectively is one of the most urgent tasks. The attempts of the government to stimulate agricul- tural development by establishing production cooperatives according to a uniform pattern regardless of differences in crop, region and tradition have - 15 - generally been unsuccessful so far. The campaign now undertaken with French technical and financial assistance to improve cotton cultivation in the north may serve as a good example to follow in the future. A similar effort to reorganize palm oil production and processing providing ef- ficient management for both the oil mills and the new plantations should be undertaken before any additional investment in that sector is considered. Marketing of cotton or oil palm products should not be too much of a problem. Dahomey will remain for some time a small producer and association with EEC will assure some protection and price support in the future. Dahomey needs and the Government indicated that it would request advice from Bank/IDA on the preparation of an oil palm development scheme aiming at providing ef- ficient management for oil mills and new plantations and at giving guide lines for improving small holders' palm oil production. Technical assist- ance is also needed for strengthening the road maintenance services in the iMinistry of Public Works. An overall road improvement and maintenance program needs to be worked out without delay. 56. A precarious budget situation, declining exports and the need to shift the investment effort to productive and employment-creating projects are the most urgent problems facing Dahomey. The external debt outstanding at the end of 1963 is estimated at some US 513 million equivalent and annual service payments account for less than 4, of official exports. All debt is owed to the former French FIDES and the Caisse Centrale de Cooperation Economique. The bulk of a DM 12 million, (US $3 million equivalent) loan by the German Government made in 1963 for the financing of a new palm kernel refinery is not included in this total as only a small portion has been disbursed. In spite of the comparatively small debt the country's capacity to service external debt on conventional terms is clearly very limited. STATISTICAL APPENDIX Table Gross Domestic Product and Expenditures in 1959 ........ 1 Agricultural Production ................................ 2 Foreign Trade - Exports by commodities ................. 3 Imports by commodities ................................. 4 Public finance - Government receipts ................... 5 Public finance - Government expenditures ............... 6 External debt .......................................... 7 Banking system ......................................... 8 Table 1 Gross Domestic Product and Expenditures in 1959 (in billion CFA francs) Resources Expenditures Agriculture, Livestock Private Consumption 2$.2 Fisheries and Forests 17.9 Public Consumption 4.2 Industry 0.4 Investment 6.3 Handicraft 0.3 Export of goods and Electric Power 0.2 services 3.1 Construction 1.9 Transport and com- munications 2.1 Commerce 6.2 Eanking and Insurance 0.3 Administration 3.6 Other Services 1.4 Gross Domestic Product at market prices 34.3 Import of goods and services 4.5 Total available resources 38.8 Total use of resources38.8 Source: Comptes Zconomiques 1959 - Minist6re de la Cooperation de la R6publique Franqaise. Table 2 Agricultural Production 1957 1958 1959 1960 1961 in metric tons Palm kernels 43,600 60,400 50,400 61,300 42,900 Palm oil 30,100 32,200 33,800 36,000 35,100 Groundnuts 27,400 15,100 32,900 32,600 22,300 Cotton (raw) 3,900 3,100 3,800 4,800 2,500 Tobacco 700 350 650 900 750 Coffee 1, 100 550 1,100 1,300 1,950 Castor seeds 650 800 650 1,000 650 Cashew nuts 4,500 4,800 7,000 3,400 5,300 Copra 550 550 400 350 1,250 Source: Ministry of Agriculture. Table 3 Foreign Trade Exports Imports Balance Volume Value Volume Value in million Year (in tons) in million (in tons) in million CFA francs CFA francs CFA francs 1958 96,786 3,371 122,032 4,329 -0.958 1959 74,113 2,833 119,008 4,335 -1:,502 1960 107,811 4,513 191,938 7,642 -3,129 1961 93,493 3,579 157,578 6,269 -2,690 1962 75,001 2,699 159,538 6,627 -3,928 Exports by cormodities in value in volume (in million CFA francs) (in metric tons) 1960 1961 1962 1960 1961 1962 Fish 213 247 129 2,397 2,689 1,497 Groundnuts 681 554 194 15,406 12,522 4,302 Coprah 41 55 39 710 1,253 1,148 Palm kernels 2,177 1,358 1,155 61,273 48,482 43,900 Palm oil 807 522 468 16,015 11,050 9,192 Shea nuts 16 59 55 813 2,891 2,572 Cotton 150 182 45 1,077 1,330 655 (a) Coffee 124 275 243 850 2,079 1,728 Others 304 327 371 9,270 11,197 10,007 Total 4,513 3,579 2,699 107,811 93,493 75,001 Source: Ministire des Finances. (a) Excess exports over production figures represent either statistical error or shipment from prior year reserves. Table 4 Imports by commodities A. Value B. Volume (in million CFA francs) (in tons) 1960 1961 1962 1960 1961 1962 Foodstuff I,372(17.9%) 1,000(16.1%) 1,381(20.9%) _34,122 27,075 31,645 of which Cereals 111 93 124 3,310 2,826 3,561 Sugar 331 267 330 6,188 5,345 7,301 Beverages 219 164 256 3,042 2,762 3,261 Consumption goods 3 578(46.8%) 31293(52.5%) 39254(49.1%) 74,5 58,866 61,297 of which Tobacco 162 213 326 343 501 537 Textile 806 953 903 1,449 2,705 1,394 Petrcleum products 741 526 527 55,437 43,302 65,122 Cars 274 238 192 696 619 446 Raw material and equip- ment goods 2,693(35.3%) 11976(31.)4M 1,992(30.0%) 83761 71 637 66,596 of which Cement 295 258 253 62,985 58,500 53,216 Metal prod- ucts 1,079 626 567 15,856 8,092 7,412 Machines 322 384 762 810 971 762 Trucks 318 263 162 998 822 510 Electrical equipment 220 162 213 487 1,707 2,301 Total 6 63 263 6 627 191,938 157,578 159,538 Source: iinist6re des Finances. Table 5 Public Finance Government receipts (budgetary estimates) 1960 1961 1962 1963 in billion CFA francs INTEIRNAL 3.65 4.79 5.13 5.65 of which Direct taxes 0.68 0.37 0.45 0.57 hxport and Import taxes 2.02 2.80 3.06 3.18 Indirect taxes 0.55 0.62 0.65 0.64 Other receipts 0.40 1.00 0.97 1.06 EXTERNAL 1.70 1. 5 1.42 1.13 of which from France 1.70 1.20 1.00 0.95 Solidarity Fund - - 0.18 - .Ex-AOF - 0.34 0.24 0.18 Reserve Fund 0.11 - - 0.11 Total 5.46 6.33 6.55 6.69 Source: Minist6re des Finances. Table 6 Public Finance Government expenditures (budgetary estimates) 1960 1961 1962 1963 in billion CFA francs Public debt 0.08 0.01 0.04 0.13 Current expenditure 3.78 h.65 h.63 h.91 of which General administration 0.38 0.57 0.54 0.44 Defense and security 0.73 0.99 1.10 1.16 Lconomic services 0.62 0.72 0.70 0.92 Public works, transport 0.27 0.24 0.24 0.25 Education 0.73 0.91 0.93 0.86 Health and social services 0.68 0.99 0.86 0.86 Common to all services 0.37 0.23 0.26 0.40 1aintenance 0.39 0.37 0.27 0.29 Subsidies 1.14 1.27 1.31 1.29 Others 0.01 0.03 0.30 0.07 Total 5.0 6.33 6.55 6.69 Source: *-inist6re des Finances. Table 7 External Debt (in million CFA francs) Estimated amount outstanding September 30, 1963 1/ French FIDES 40 year 1% (to ex-AOF) consolidated 1962 2/ general section 3,2342/ local section 27 Caisse Centrale de Cooperation Lconomique (OCCE) 922/ Germany 12 million D.1M. In September only a small portion of the loan was disbursed at this date - 3,353 or US $ equivalent 13 million 1/ French FIDES program consisted of a general section, financed by France, and a local section financed by the former territories but in most cases profinanced by advances from the C.C.C.E. 2/ Interests included. Dahomey has also guaranteed loans in the amount of 482 million CFA francs made by C.C.C.L. to Aunicipalities or independent public agencies. It therefore has a contingent liability in the budgeted amount mentioned in Table 6 in case of default by the horronwing MuCicipaity or agency. The amount outstanding of loans guaranteed is at September 30, 1964 322 million CFA francs. Table 8 Banking System (in billion CFA francs) December 1960 1961 1962 Deposits Demand deposits 1.9 1.9 2.5 of which Commercial Banks 1.4 1.4 2.0 Public Credit Institutes - - 0.1 1/ Postal checking 0.5 0.5 0.4 Time deposits 0.3 0.3 o.4 of which (Saving Bank) (0.2) (0.2) (0.2) Loans 2.4 2.4 3.0 of which Commercial Banks n.a. 2.3 2.8 Public Credit Institutes n.a. 0.1 0.2 of which Short term 2.0 2.1 2.7 Medium term 0.4 0.3 0.3 (rediscount) (0.8) (0.8) 1/ Private individuals and enternrises only.