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World Bank Study Sheds Light on Ways to Revive Togo's Economy

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  • A diagnostic study of the Togolese economy conducted by the World Bank has identified priority sectors for policymakers
  • Improving the business climate, investing in infrastructure, agricultural productivity and the service industry rank high on the list of recommendations made by the study
  • The report will serve as a framework to inform the strategies of the country’s various development partners

LOMÉ, October 27, 2010―The Togolese economy has undergone difficult times, the most severe being the period of suspension of international financial assistance between 1992 and 2007, during which the main sectors of the economy deteriorated significantly. With the resumption of cooperation after the 2007 legislative elections and the return of financial assistance, many efforts were undertaken to jumpstart the economy. In pursuit of these aims, the Togolese Government commissioned a Diagnostic Trade Integration Study (DTIS) with the goal of reviewing all key sectors of the national economy in order to identify the main constraints to spurring economic growth in Togo and to take the necessary measures to tackle those constraints.

Titled “Revive the Traditional Sectors and Lay the Foundation for the Future: A Strategy for Export-led Growth,” the DTIS was spearheaded by the World Bank and validated by the principal stakeholders on July 27–29, 2010. The main findings of the report are summarized below.

Improve the Business Climate and Develop the Appropriate Skills

In general, with respect to the business climate, Togo’s position on the Doing Business ranking has improved little over the past five years. Research shows that access to credit constitutes one of the biggest challenges for the private sector and impedes enterprise development. Weaknesses are also noted with regards to the fight against corruption, protecting investors, and starting a business. In addition, a survey of businesses revealed that 60 percent believe that the courts are neither impartial nor free from corruption. The report indicates that more attention should therefore be paid to the professionalization of commercial courts and the application of commercial law.

It is undeniable that the private sector’s contribution to economic growth is vital. However, the skills available on the market are not adapted to the demand. The report addresses the low quality of instruction and high unemployment rate, and indicates that it is important to establish a more effective link between the private sector and vocational training. This can be accomplished through internships, the involvement of the private sector in designing post-secondary training programs, and improvements to the quality of teaching provided in private training institutions.

Upgrade Infrastructure and Lower Costs

On the subject of infrastructure, the report made a number of observations, of which the following are the most significant. Electricity rates are well above the regional average, which jeopardizes Togo’s competitiveness in the manufacturing industry where electricity is a key input. With respect to communications (landlines, mobile telephones, Internet access), costs are very high relative to other countries in the sub-region where there is more openness and competition in the mobile telephone sector is greater. As for the road network, major construction and rehabilitation works are necessary, as well as effective maintenance. The report notes the importance of the Port of Lomé and recommends improvements aimed at maintaining its competitiveness. In light of the normalization of the situation in Abidjan and the reforms underway in Ghana, greater streamlining of procedures and their incorporation into the establishment of a one-stop shop for all import/export operations are taking on a sense of urgency.

Develop a Coherent Trade Strategy to Focus Resources on the Main Priorities

With regard to trade policy, the report reveals a dramatic shift in the structure of exports following the decline of the phosphate and cotton sectors. Cement and clinker have become the country's main export products (35 percent to 40 percent of exports), with exports increasingly destined for ECOWAS countries (68 percent to 70 percent of total). Imports have not changed as much, but China’s position as the country of origin has been considerably strengthened (from 3 percent of imports in 2000 to 16 percent in 2007). It is noted that the trade policy is largely determined by regional agreements, but the report recommends strengthening the analytical contribution during negotiations in order to better defend legitimate interests. In order to lift constraints relating to the development of trade and trade policy (weak technical capacity, unavailability of reliable and timely information, instability of the institutional framework), the report recommends development of a coherent trade strategy that focuses resources on the main priorities. In addition, a rational approach to fostering investment and exports is also proposed to avoid discrimination against businesses outside of the free zone.

The DTIS also focuses on trade facilitation, transit and re-export trade, and on the Togolese free zone. It notes, for example, that the excessive trade-related costs and delays are due mainly to the failure to apply regional transit agreements, as well as delays and surcharges caused by customs and escort services. Furthermore, the customs clearance procedure consists of too many steps and gives rise to unofficial and unwarranted payments.

Owing to its geographic position and deep-water port, Togo provides storage services to neighboring countries. Import/export traffic destined for other countries (transit and re-export) provides value added estimated at 10 percent of GDP, with the greatest portion coming from the re-exportation of used vehicles.

Reposition the Free Zone and Promote Labor-Intensive Export

The total production of the 60 businesses established in the Togolese free zone was valued at around US$300 million in 2008, and exports in that year amounted to US$260 million. Although subject to various kinds of disputes (exploitation of the labor force, businesses that close at the end of the tax holiday, among other grievances), the report reveals that the minimum wage is generally higher than that of the national market and that the number of jobs created (over 9,000 full-time jobs) accounts for a significant portion of employment in the formal private sector. However, a repositioning of the free zone is viewed as necessary in order to promote labor-intensive export targeting overseas markets. The report also stresses the importance of a stable tax regime that should reassure investors.

Agriculture: Providing Jobs and Income to the Poor

According to the report, agriculture remains the sector that directly increases the income of the poor, but there is still much to be done in order to take advantage of the opportunities and improve Togo’s competitiveness with regard to traditional export products such as cotton, coffee, and cocoa. The cotton industry deserves priority attention given the large number of the poor involved in it. The coffee and cocoa industries require a new global strategy centered on improving yields. Furthermore, if proper focus is placed on the potential of food production ―in particular by encouraging exports to the sub-region of food products for which local demand is already adequately met― economic growth and income generation should increase significantly. However, it is important to strive to resolve certain cross-cutting issues in order to make the best use of the country’s agricultural potential, in particular through land tenure reform, development of rural roads, use of market information systems, and modernization of research and dissemination services, among other means.

Potential Sources of Economic Growth

A review of the Diagnostic Trade Integration Study reveals that the key sectors driving economic growth in Togo are still phosphates, cotton, food crops, cement, and transit and free zone trade. To derive the greatest benefit from these different sectors and quickly revitalize the Togolese economy, the report recommends that a number of priority actions be implemented as soon as possible.

These include in particular: revive the phosphate sector and renew confidence in the future of the cotton sector by improving governance, facilitating the entry of a strategic private investor in both sectors, and building the capacities of cotton producers’ organizations; Promote the production of food crops for export to the subregion and effective alternatives for imports; Expand the Togolese free zone and redirect its activities toward highly labor-intensive sectors and access to markets beyond the subregion, based on a cost/benefit analysis of the zone and a target study; Develop a stable and transparent regulatory framework in order to attract solid private investors who are prepared to make a long-term commitment, while ensuring that the State possesses the necessary resources for development; Invest in infrastructure and services at the Port Autonome de Lomé in order to maintain and consolidate its role as a regional “hub” ; and Promote lawful transit and re-export trade by rehabilitating roads, developing regulations, and enhancing competition in road transport.

The Government has already undertaken efforts in this regard, particularly in the cotton, food crop, business environment, infrastructure, and electricity sectors, among others.

These efforts are supported by development partners such as the World Bank, which provides substantial support in promoting good governance and finances a number of projects under way in the country with respect to infrastructure, transport and trade facilitation, the financial sector and governance, and, soon, agriculture.

Background

The Diagnostic Trade Integration Study was made publicly available in September 2010. It was commissioned by the Togolese Government and conducted by the World Bank, with the assistance of national and international consultants. The DTIS launches Togo’s participation in the Enhanced Integrated Framework for Trade-Related Technical Assistance program. It builds on the content of Togo’s Poverty Reduction Strategy with respect to economic growth and aims to achieve a consensus between the Government and stakeholders on the priorities to be considered in this area. In addition, the report will serve as a framework to inform the strategies and interventions of the country’s various technical and financial partners, starting with those from the World Bank.


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