Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Basic data
Benin is among the least developed and poorest countries in the world. The country’s economy is small and very poorly diversified – it depends on agriculture (cotton), regional trade (the port of Cotonou) and foreign aid. The country is rich in minerals, but their export use is hindered by bureaucracy, backwardness of the mining industry and poor infrastructure. Benin is dependent on trade with Nigeria and any restrictions on the Nigerian side mean a serious problem for its economy. 75% of the goods that pass through Cotonou port are destined for Nigeria. The country faces many problems – neglected infrastructure, unfavorable investment and business climate, corruption, poor management and inefficient state administration. On the contrary, the strengths of the Beninese economy include: rich agricultural potential, abundant but untapped mineral and energy resources. Check ebizdir for economical facts of Benin.
Real GDP fell by 3% in 2020 due to the pandemic, a fall in cotton exports and a trade ban imposed by Nigeria in August 2019 (lasted throughout 2020) to block large-scale cross-border smuggling of goods, especially rice. As part of the Strategic Plan for the Development of the Agricultural Sector 2017-2025, 7 pillars of agricultural development were created. Implementation of the strategy to support several sub-sectors – maize, rice, cotton, cashew, cassava and pineapple – is underway. Thanks to this, real GDP growth of 1.4% can be expected in 2021. As agriculture accounts for more than 25% of GDP, growth will be supported by increasing agricultural production.
Inflation averaged an estimated 3% in 2020 and during the year after a period of deflation that lasted into early 2020 due to high global food prices, including rice (which accounts for almost 1/3 of Benin’s total exports).
The current account deficit should decrease to 5.4% of GDP in 2021, and the fiscal deficit to 3.2% of GDP.
Industry contributes 12.9% to the creation of GDP. Industrial production is focused on the processing of agricultural raw materials, the production of food and beverages, paints, textiles and cement. The basic problem is the lack of electricity, which should be alleviated by a gas-fired power plant being built together with Togo, fueled by gas supplied by the West African Gas Pipeline, and 2 hydroelectric power plants under construction. The main branches of industry are the textile industry (mainly processing domestic cotton) and the building materials industry (cement). The mining industry remains insignificant due to delays in granting the necessary licenses. Agriculture contributes 32.4% to the creation of GDP, the sector employs almost 3/4 of the working population. Benin is for the most part self-sufficient in food production (of plant origin), supply shortfalls (and therefore necessary imports) occur mainly due to smuggling into Nigeria. The most important cultivated crop is cotton, which accounts for approximately 25% of the total GDP and brings up to 80% of foreign exchange earnings. In addition to cotton and oil palms, peanuts, cocoa beans, coffee, palm fruit, maize, sorghum, cassava (tapioca), yam, pulses, some rice and tobacco are grown.
| Pointer | 2018 | 2019 | 2020 | 2021 | 2022 |
| GDP growth (%) | 6,7 | 6.9 | -3.0 | 2.4 | 4.5 |
| GDP/population (USD/PPP) | 3,235.4 | 3,420.0 | 3,240.0 | 3,280.0 | 3,390.0 |
| Inflation (%) | 0.9 | -0.9 | 1.3 | 3.1 | 3.8 |
| Unemployment (%) | 2.4 | 2.3 | 2.5 | ON | ON |
| Export of goods (billion USD) | 3.3 | 3.6 | 2.9 | 3.2 | 3.5 |
| Import of goods (billion USD) | 3.9 | 4.0 | 3.6 | 3.8 | 4.0 |
| Trade Balance (Billion USD) | -0.6 | -0.4 | -0.8 | -0.6 | -0.6 |
| Industrial production (% change) | ON | ON | ON | ON | ON |
| Population (millions) | 11.5 | 11.8 | 12.1 | 12.5 | 12.8 |
| Competitiveness | 123/140 | 125/141 | ON | ON | ON |
| OECD export risk | 6/7 | 6/7 | 6/7 | 6/7 | ON |
Source: EIU, OECD, WEF
Public finance and state budget
| Public finance | |
| State budget balance (% of GDP) | -3.3 |
| Public debt (% of GDP) | 43.8 |
| Current account balance (billion USD) | -0.8 |
| Taxes | |
| AFTER | 25-45% |
| F.O | 20-45% |
| VAT | 18% |
The pandemic continues to damage public finances. The strong hit to revenues, along with higher health and social care spending, pushed the fiscal deficit to an estimated 3.9% of GDP in 2020. Spending will remain high in 2021 due to April’s presidential election and the ongoing impact of the pandemic. However, fiscal rationalization will be the moment in 2022 when the government renews efforts to implement consolidation measures in an effort to secure the next IMF ECF program and the economic impact of the pandemic will be reduced. In 2021, revenues will be boosted by a recovery in cotton production (the main source of fiscal revenue) as international trade recovers. However, this will be partially offset by government stimulus measures to support growth.
In December 2020, the Benin parliament unanimously adopted the 2021 budget proposal presented to it by the government in October; the budget includes additional state support in the form of exemptions from taxes and duties – including value added tax (VAT) – for some sectors such as energy and transport and for small businesses. These support measures will continue to hamper revenue collection in 2021. However, we expect stronger revenue growth in 2022, assuming the government (facing pressure from the IMF) renews efforts to increase tax and customs revenue, including by reducing tax exemptions to increase efficiency) integration of electronic systems of tax and customs administrations. We expect the fiscal deficit to decrease from an estimated 3.9% of GDP in 2020 to 3.2% of GDP in 2021 and 1.2% of GDP in 2022.
Banking system
The central bank responsible for monetary policy is the West African Central Bank (Banque Centrale des États del’Afrique de l’Ouest – BCEAO), which is headquartered in Dakar, Senegal and provides services to all seven members of the UEMOA (Union Monétaire Ouest Africaine). It oversees the activities of commercial banks in the Commonwealth countries, issues currency and oversees liquidity within the West African monetary zone through rediscount rates and control of member money markets. In its monetary policy, it basically copies the decisions of the European Central Bank. The CFA franc is firmly tied to the Euro, the exchange rate is 655.96 FCFA/1Euro. The banking sector is undergoing rapid development.
The following banks operate in the country and have a sufficient network of branches inland as well. • Bank of Africa (BOA) • Ecobank Benin•Orabank • Banque Internationale du Bénin (BIBE) • Banque de l’Habitat du Bénin • CCEI Bank Benin•Diamond Bank (Nigerian) • Societé Genérale du Bénin · Banque Atlantique du Benin • United Bank for Africa (formerly Continental Bank Benin), • BGFIBank-Benin (French-Gabonese).
All these banks have an A+/A rating, i.e. they meet international standards and provide adequate services.
In addition to the banks mentioned above, there is also a savings group (CLCAM) operating in the country, affiliated to the FECECAM Benin federation, which manages citizens’ savings and provides private loans. Banks offer the usual range of banking products (letters of credit, commercial loans, various promissory notes, etc.). However, loans for medium and long-term investments by private entities are still difficult to obtain. Most of the banks mentioned above also issue international payment cards, their use is still limited, especially inland. Financial operations outside the UEMOA zone in foreign currency can be carried out on the basis of complete documentation and are subject to control. Foreign investments, loans must be declared to the Ministry of Finance.
Tax system
The tax and regulatory system is far from perfect (one of the government’s main goals is to improve the tax collection system), but it does not discriminate against foreign entities. A foreign company must register with the tax authority. Companies registered in Benin as well as branches of non-resident companies are subject to tax obligations. The tax is paid on profits generated in Benin and dividends that flow to these companies from abroad. Tax residents – natural persons (including foreigners) should pay tax on worldwide income in Benin.
The Benin tax system consists of the following basic direct and indirect taxes and employee social insurance:
- 1) Personal income tax (income from production or business activities, non-commercial income, employment income, income from investments and income from property): progressive in the range of 20% (annual income higher than 200,000 FCFA) – 45% (above million FCFA). Employee income is taxed progressively depending on income between 10% (income over 50001 FCFA/month) – 35% (over 530,000 FCFA)
- 2) Corporate profit tax (profits from industrial or commercial activities, non-commercial profits, investment income and rental income): 25% for industrial enterprises, 30% for others, 35-45% for mining and oil companies.
- 3) Value added tax: 18%, this tax does not apply to goods intended for export, some imported goods (pharmaceutical products, books and educational materials, artificial fertilizers, etc.), as well as to medical, banking services and cultural performances (exceptions a new law on the budget (Loi de Finances) is established every year.VAT is paid directly to customs on imports, in this case it is deductible from the retail price,
- 4) Social Insurance – 15.4% of the salary is paid by the company, 3.6% by the employee,
- 5) Health insurance – 1-4% of salary, Companies are obliged to pay other payments and taxes, such as payroll tax (4%), real estate tax (6%), withholding tax: 10-15%), transfer tax (8% in case of transfer of movable property), etc.
No major rate changes are expected in the future.
