Economic Overview and performance

Located in the Gulf of Guinea between Benin and Ghana, Togo is a small country with an estimated population of 7.1 million according to 2010 United Nations projections that is growing at 2.7 percent annually and likely to double in 25 years. Per capita income (US$437 in 2009) is low compared to Sub-Saharan Africa (US$1,082) and Low Income Countries (US$524) averages. The country is a member of the West African Economic and Monetary Union (WAEMU) and of the Economic Community of West African States (ECOWAS).

Togo has a very poor human development index (HDI), ranking 159 out of 182 countries. The main economic activities are mining, agriculture and re-exporting. Agriculture employs two-thirds of the population and accounts for about 45 percent of GDP. The secondary sector, including phosphates, cement manufacturing, construction and energy employs about 12 percent of the population and accounts for about 22 percent of GDP, while services, dominated by commerce and transport, employ about 21 percent of the population and generate about 33 percent of GDP. The most important exports are cement and clinker which go entirely to the West Africa regional market where demand remains strong, followed by cotton, both processed and marketed by public enterprises. Togo also produces cash crops, mainly coffee and cocoa, and has a considerable agricultural potential.

Togo’s growth performance has been among the weakest in Sub-Saharan Africa, with per capita income declining by an average of one percent annually since the early 1980s. As a result, poverty has increased significantly and it is estimated to affect 61.7 percent of the total population in 2006, including 74.3 percent of the rural population and more than 90 percent in the northernmost region (Savanes).

Togo’s economy was severely impacted by the surge in global food and fuel prices in 2008 as well as heavy flooding in the summer of the same year that affected key transport infrastructure and damaged agricultural output. The global recession in 2009 contributed to further delay the economic recovery. However, thanks to better rainfall and increased fertilizer subsidies which induced higher cereal production, real GDP growth which was estimated at 3.1 percent in 2009 rose to 3.4 percent in 2010.  Cotton production is on an upward trend, and rose to an estimate of 45,000 tons in 2010 (as opposed to 25,000 tons in 2009) thanks to a good rainfall, and the creation of a new national cotton company with a good participation of cotton producers. The increase of food production in 2010 has helped to keep inflation at lower level (an estimated 2.6 percent in 2010), despite the increase of fuel prices and the depreciation of the CFA franc against the US dollar.  It should however be noted that the severe flooding that affected large parts of the country between September and October 2010 has caused important damages to infrastructure and crops thus affecting the country’s economic growth.

Togo remains on track with the three-year IMF Extended Credit Facility (ECF) which runs until August 2011. The program is aimed at reviving economic growth and improving living conditions within a stable macroeconomic environment, by (i) bringing public debt to a sustainable level through gradual fiscal adjustment; (ii) facilitating the resumption of external assistance; (iii) increasing resources for infrastructure, agriculture, health, and education; (iv) strengthening fiscal governance; (v) restructuring fragile banks; and (vi) reforming the business environment and state-owned enterprises. In December 2010, Togo reached completion point under the Heavily Indebted Poor Countries (HIPC) initiative. This led to the cancellation of around US$1.8bn (82% of its external debt). Togo completed the fifth review of the IMF Extended credit facility (ECF) program in December 2010. Most fiscal and monetary benchmarks were met, and structural reforms are advancing in state-owned enterprises, in the banking, phosphate and cotton sectors, although there will be delays in meeting some targets, largely because of capacity constraints.

Political Context

The successful legislative elections of 2007 paved the way for Togo’s re-engagement with the international community, after a suspension period of more than 15 years during which foreign assistance was very limited.  The March 2010 presidential elections which reinstated President Faure Gnassingbe were well received by the international observers. Prime Minister Gilbert Fossoun Houngbo was reappointed to his position, and in May 2010, he formed a 31-member government of national unity largely dominated by the “Rassemblement du Peuple Togolais (RPT)”, the party in power. The new government remains reform-oriented and determined to pursue the economic reform programs started under the previous cabinet. For the very first time in Togo’s history, the main opposition party, “Union des Forces du Changement – UFC” of Gilchrist Olympio, has accepted to participate in a government led by the RPT.

But UFC’s participation in government caused a deep split in the party.  A good number of its members rejected the rapprochement and left the party to form a new one, Alliance nationale pour le changement (ANC).  In November 2010, nine members of parliament who joined the newly created ANC were stripped of their seats and replaced, following a ruling of the Constitutional Court, on the grounds that all UFC candidates in the 2007 election had signed a commitment to resign from parliament if they changed party. The Court’s decision has led to the resumption of the weekly demonstrations organized by the opposition coalition FRAC (Front républicain pour l’alternance et le changement).

Development challenges

Togo has achieved considerable progress during the past three years, but significant institutional and economic challenges remain. The rise in oil and food prices, the severe flooding in 2008 and 2010, and the global recession in 2009 adversely impacted Togo’s economy. Togo’s income per capita (US$440 in 2009 according to the Bank’s Atlas methodology) is low compared to Sub-Saharan Africa (US$1,135) and Low-Income Countries (US$512) averages. With regard to the Millennium Development Goals, progress has been achieved toward reaching the goals of universal primary education and the combat of HIV/AIDS. However, Togo is unlikely to meet six of the eight goals by the 2015 deadline. The country’s business environment remains difficult as highlighted by the World Bank’s “Doing Business 2010” report which ranks Togo 160 out of 183 countries.  The capacity of the administration to create an environment conducive to private sector development needs to be strengthened.  The country’s financial sector strategy and planned privatization of ailing state-owned banks is expected to boost investors’ confidence and improve the banking sector’s capacity to finance the economy.

 

The World Bank re-engaged with Togo in May 2008 when arrears to the International Development Association (IDA) were cleared and the Board endorsed an Interim Strategy Note (ISN) for FY 2008 to 2010 and approved a US$164.3 million Economic Recovery and Governance Grant (ERGG). The ISN is closely aligned with the government’s PRSP presented to the Boards of the IMF and IDA in November and December 2009, respectively. The ISN is based on three strategic pillars:

• Governance and Capacity Building: Since re-engagement, the World Bank has provided four Economic Recovery and Governance Grants (ERGGs) to Togo to support policy reforms in public financial management, cotton, phosphates and energy. These were approved in May 2008 (US$175 million), May 2009 (US$20 million), April 2010 (US$16.3 million), and March 2011 (US$28 million), An update of the public expenditures management and financial assessment review (PEMFAR) was completed in March 2010 and an Accounting and Auditing Assessment Report in April 2010.

• Promote Economic Recovery and Sustainable development: The Financial Sector and Governance Project (US$12 million) approved in March 2009 supports the restructuring of the banking sector, the strengthening of the microfinance sector, the reform of the pension sector, and other financial and private sector reforms. A Country Economic Memorandum / Diagnostic Trade Integration Study (CEM/DTIS) was completed in 2010, and provided an in-depth analysis of key economic sectors and reviewed the potential drivers of growth in the medium-term. An Investment Climate Assessment was also completed in 2010 to provide a crucial diagnostic of the business climate.  This is followed by a Private Sector Development Project approved in March 2011. Rehabilitation of critical infrastructure continues to be a priority. Activities financed under a LICUS-funded Lomé Infrastructure Rehabilitation and Maintenance Project (US$1.5 million) have been scaled up under an Emergency Infrastructure Rehabilitation and Energy Project approved in June 2009 (US$25 million) and complemented by the GEF Efficient Lighting Program (US$1.82 million). An additional financing of US$15 million is currently under preparation to scale up basic urban services (drainage systems and roads) to mitigate the impact of the 2010 floods. Togo is part of the regional Abidjan-Lagos Transport and Trade Facilitation Project approved in March 2010. A US$53.9 million operation (IDA and Multi-donor trust funds) operation to support the agricultural sector is scheduled for Board approval on April 12, 2011. This will be complemented by a West Africa Agriculture Productivity Project (approved in March 2011) to strengthen the national agricultural research system and extension services.

• Address urgent social needs: The Education for All FTI Grant (US$45 million) came into effect in January 2011 and aims at facilitating access to school, improve the quality of education, and strengthen the institutional capacity of the ministry of education. The Community Development Project (US$17.2 million) approved in May 2008 has been scaled up by the Global Food Response Program (GFRP) Trust Fund in 2008 (US$7 million) to help with the impact of the floods, and received a second additional financing of US$8.7 million in June 2010, from the Crisis Response Window (CRW) to expand the school feeding component of the parent project and add a new component on temporary employment. To address flood risk management and preparedness, a Disaster Risk Management country plan is under preparation as part of an Integrated Disaster Risk and Land Management Project (US$12.3 million, financing from IDA/GEF/TerrAfrica). The Bank also supports Togo (through a multi-donor trust fund) to implement its Extractive Industry Transparency Initiative (EITI) program, in addition to the technical assistance provided.

The Bank is currently preparing a new Interim Strategy Note to cover the period from 2011 to 2013, which will be aligned with the pillars of the PRSP. 

IFC

Total committed portfolio as of March 27, 2011 was US$129.4 million.  These include an equity investment of US$14 million for ContourGlobal Togo, a loan of US$1.4 million to Transam, a US$110 million equity investment in Heidelberg Cement Africa.  IFC also provided a US$4.0 million guarantee to Ecobank Togo under the Global Trade Finance Line Program.  As part of its second phase of investment in ECOBANK-ETI through 18 countries, US$6.9 million out of US$137.2 million from the Capitalization Fund is proposed for further allocation to Ecobank Togo in the form of equity and subordinated debt.  IFC received Board approval in January 2011 to provide Euro 85 million in a loan funding and mobilization of an additional Euro 170 million in support of the Euro 350 million greenfield transshipment container handling terminal / port being developed by the Lomé Container Terminal (LCT), a company affiliated with Mediterranean Shipping Company (MSC).  

MIGA

Presently, MIGA does not have any exposure resulting from investments in Togo nor has the Agency received any formal requests for support of investments in the country.

WBI

In Togo, WBI delivered a program on financial engineering of carbon projects. In addition, activities were offered in the sub-region across many sectors and will also be available in FY 2010.

 

Rural communities take charge of their own development

The US$17.2 million Community Development Project provides poor communities throughout the country with improved basic socio-economic infrastructures and income generating activities.  A US$7 million additional financing was provided in late 2008 in response to a significant escalation of food prices, especially of staple foods, that are at the base of the Togolese diet. In June 2010, the Project was granted a second additional financing of US$8.7 million to help expand the school feeding program to about 36,000 more pupils, and introduce a new component aimed at offering labor intensive works to about 26,000 people, 60 percent of whom will be women and the youth. The new component will focus on the reforestation of degraded lands.

The project’s activities started in the second half of 2008, and considerable results have already been achieved.

• Better community infrastructures: To date, 271 class modules and a dozen health centers have been constructed and rehabilitated.  Other socio-economic infrastructures built by the project include sheds in markets, community latrines, potable water boreholes, feeder roads.  These have helped: (i) create better working conditions for school children and teachers; (ii) provide access to health care and safe drinking water; (iii) improve marketing and commercial infrastructure; and (iv) improve sanitation
• Living conditions improved for over 233 organized groups of people who received an average of between FCFA 1.5 million to over 8 million per group to engage in income generating activities in agriculture and commerce. From revenues obtained through these activities, beneficiaries are now able to provide better care and schooling for their children. Women are particularly proud of being able to send their girls to school, because they have become more economically independent and can make decisions or take part in the family decision-making process.
• Children in the poorest communities are offered access to education— 36,000 school children in 181 schools of the poorest communities in Togo are being offered lunches through the project’s school feeding program. Based on the results so far, the school drop-out rates have been reduced considerably, and school attendance has increased in all the country’s five regions. It is now certain that this project is offering the chance to children from poorest families to at least complete primary education.
• Increasing agricultural productivity— 4,275 tons of fertilizer and over 304 tons of cereal seeds (maize, rice and sorghum) were distributed to about 14,000 agricultural farmers during the 2008 to 2009 agricultural season. This allowed the cultivation of 13,395 hectares of land which yielded a cereal production of about 28,000 tons (representing an estimated increase of about two tons per hectare). As a result, cereals are on the markets at affordable prices, compared to previous years.
• Poor communities are empowered— The Community Development project has empowered beneficiary communities by providing them with tools and techniques that allow them to take charge of their own development. To date, a total of 6,718 village development committee members (including 2,666 women) have received appropriate trainings, and are now able to identify and prepare projects, procure the works, and manage the funds they are granted. Women are also empowered and their participation in the project has increased.

Improving urban infrastructure in Lomé and its surroundings

The US$1.5 million Lomé Infrastructure Rehabilitation and Maintenance project (LIRMP) closed on June 30, 2010. The project helped add a second lane to Boulevard de l’Oti, a major road in a highly populated area in the capital city Lomé heavily used by economic operators working in the industrial zone, including the Port of Lomé. The new roadway (a dual carriageway in both directions) includes a 2.4 kilometers long road with a width of seven meters. The project has improved and eased circulation for the thousands of road users who formerly spent long hours in very congested traffic. Security for motorcyclists and pedestrians has also improved, and the drainage works constructed have improved the quality of life of people living in the immediate surroundings and who used to suffer from regular floods during rainy seasons.  A Community Cultural Center at Bè was rehabilitated to restore its multi-purpose auditorium and added new offices, parking space for up to 10 vehicles, toilets and ablution facilities thus enhancing the community’s use of the space for social and cultural events.

The LIRMP was a precursor to a US$26.82 million Emergency Infrastructure Rehabilitation and Energy project (US$25 million IDA /US$1.82 million GEF) which started in 2009 and includes investments in the energy and water sectors, in addition to the rehabilitation, construction and paving of roads and drainage systems in Lomé and its surroundings. At the end of August 2010, the project completed the cleaning of 70 kilometers (original target was 42 kilometers) of gutters and drainage systems to help reduce the impact of flooding in the city. While efforts are being made to find lasting solutions to the regular flooding that affects Lomé during the rainy seasons, the project has built –at government’s request— a “Centre for the victims of natural disasters” at Logopé (a suburb of Lomé) to offer temporary accommodation to about 1,000 people who are regularly displaced and who usually take refuge in schools during the rainy seasons.  The project has completed the rehabilitation of the electricity distribution network in Lomé: 20 medium voltage / low voltage transformer stations have been rehabilitated (a few reconstructed) to upgrade the power distribution system and supply good quality electricity with acceptable voltage drop. Also, to improve the quality of supply and reduce voltage drops, 30 kilometers of low voltage distribution network have been constructed; and 200 fault detectors have been installed to improve network availability.  Procurement is underway to obtain about 400,000 Compact Fluorescent Lamps (CFLs) to implement the energy efficiency sub-component of the project.  Once completed by August 2011, more voltage gains would be achieved for Lomé to enable further extension of the electricity network to disadvantaged neighborhoods.  Works are currently underway to rehabilitate some Lomé road networks, and improve access to potable water for communities living in the outskirts of Lomé.  The German Government through KfW has provided parallel financing of this Bank project with an amount of 13 million Euros to undertake the construction of a 15 kilometer “Petit Counturnement”, a road that would further divert large heavy trucks departing the Lomé Port to avoid using city roads as they move to the northern parts of the country onwards to the landlocked neighboring countries.

Economic Recovery and Governance Grants help promote good governance and transparency

Since the Bank’s re-engagement with Togo in May 2008, four Economic Recovery and Governance Grants (ERGGs) have been approved. The recently approved ERGG-4 would continue to engage the Bank in the strengthening of governance with the aim of improving budget formulation, execution and controls, and public procurement.  It would also help consolidate the basis for strong and sustained growth, including through reforms in the key sectors of the economy (phosphate, cotton and energy sectors).

Financial sector reform

The US$12 million Financial Sector and Governance project effective since August 2009 aims at supporting the Government of Togo’s financial sector reform program, focusing on the banking, pension and microfinance sectors. With regard to banking reform, the project has financed privatization advisers to provide guidance to the government on the privatization of the four public banks. The Privatization Law was approved by the National Assembly in October 2010. With regard to the pension sector reform, the project is financing various diagnostic reports to prepare the required reforms. And with regard to microfinance, the project has been providing support to the national supervisory authority to strengthen the supervision of the microfinance sector.

 

Contribution of other development partners

The resumption of European Union cooperation in November 2007, and the March 2010 presidential election that was judged largely free and fair by the international community have facilitated Togo’s relations with its key partners and donors. Financial support from key donors, including the EU, the IMF and the World Bank are on good track and are increasing. Bilateral partners are also increasing their contributions for the country’s development. These include mainly France, Germany, the United States of America, and China.