Burkina Faso - Competitiveness and Enterprise Development Project

Report No. PID9940 Project Name Burkina Faso-Competitiveness & Enterprise... Development Region Africa Regional Office Sector Privatization Project ID BFPE71443 Borrower(s) GOVERNMENT OF BURKINA Implementing Agency Address GOVERNMENT OF BURKINA Ministry of Commerce, Enterprise Promotion and Handicrafts Ouagadougou, Burkina Faso Contact Person: Minister Bedouma Alain YODA Tel: (226) 31 44 93 Fax: (226) 31 84 97 Environment Category B Date PID Prepared December 10, 2000 Projected Appraisal Date May 15, 2001 Projected Board Date September 15, 2001 1. Country and Sector Background Burkina Faso has implemented a wide range of macroeconomic reforms under a series of stabilization and structural adjustment programs supported by the Bank, the IMF and other donors that have led an average growth rate of 5.7 percent over the period 1996-1999 versus 3 percent between 1980 and 1993. More specifically, reforms carried out over the past five years covered the following areas: (i) trade and price liberalization and taxation, (ii) privatization (or liquidation) of 44 public enterprises, (iii) banking sector restructuring, and (iv) specific actions to support growth in mining and agriculture and livestock. Some of these reforms have been supported by a number of Bank-financed projects, including a Private Sector Assistance project aimed at improving the institutional environment for private activities, which closed on June 30, 2000.Recent economic reforms have not made a dent in the poverty situation of the country however. About 45.3 percent of the population still live below the official poverty line of US$35c/person per day, against 44.5 percent in 1994. The Government has carried out a number of studies to better analyze the challenges it is facing; including a deep analysis of the characteristics and determinants of poverty and a comprehensive study of competitiveness and long-term sources of growth in Burkina Faso. The latter identified four major constraints to growth: (i) weak human resources, low labor productivity and high unemployment, (ii) weak infrastructure, high input costs, (iii) limited size of the formal sector, and (iv) weak institutional capacity. The Government has realized that acceleration of growth is critical for poverty reduction but to achieve this, it will need to address the above issues in a coherent and sustained way:Government involvement in productive and commercial activities through public enterprises: The Government is still involved in 53 enterprises, of which 11 are big enterprises fully owned by the State that are mainly  involved in public utilities; 18 smaller enterprises that are also fully or majority owned by the State; and 24 small enterprises in which it holds only a minority shareholding. The PE sector represents some 20,000 jobs. These enterprises suffer from insufficient equity due to the lack capacity of the State to contribute to investment needs. The Government is expected to make a decision on the list of PEs to be privatized by the end of pre-appraisal.Under-developed infrastructure and high costs: Despite the efforts initiated by the Government, Burkina Faso has among the highest unit costs of production in the entire Union Economique et Monetaire des Etats de l'Afrique de l'Ouest (UEMOA / WAEMU) region, in addition to underdeveloped infrastructure in most areas and poor quality of services. These high factor costs are translated into high transaction costs in a non-competitive environment, and have not been conducive to foreign investment and the expansion of the private sector in general. As a result, the situation by sub-sector is as follows:Telecommunications: (i) limited access of the population to telecommunication services (only 5 lines per 1,000 people) as a result of lack of public financing and competition in service provision, (ii) high prices due to monopoly and high costs of investment and operations, (iii) nascent regulatory authority which needs to become operational to deal with a multi-operator environment as the market opens up, and (iv) internet development restricted by a limited number of phone lines and high price of bandwidth.Power Sector: The distribution network is inadequate (servicing only 9 percent of the total population) and power prices are high compared with neighboring countries with similar GDP size and smaller population. This is due to a number of factors, including the high cost of generation due to an inadequate power system planning and the poor performance of SONABEL, in charge of electricity production and distribution. Per capita consumption was about 22kwh in Burkina Faso, compared with lOOkwh in Cameroon, 200 kwh in Senegal and 270 kwh in C