Macroeconomic performance and Outlook
Economic growth in Benin remains robust (estimated at 6.7% in 2019), thanks in part to an increase in public investment from 21% of GDP in 2016 to 29.6% in 2019. On the supply side, growth is due to the performance of the agricultural sector led by cotton, whose production rose from 269,222 tons in 2016 to 726,831 in 2019; the vitality of the construction industry; and the dynamism of the port of Cotonou. Inflation remained low, estimated at –0.1% in 2019, and below the WAEMU 3% threshold. The CFA franc, pegged to the euro, appreciated against the dollar over 2017–19.
The fiscal deficit, financed through loans and grants, was reduced to 2.5% of GDP in 2019. The cur- rent account deficit, which improved thanks to cotton exports, has been financed primarily through official loans (33%), private loans (27%), and foreign direct investment (19%).
Foreign exchange reserves fell to $20.93 million in 2018 (or 0.07 months of imports). The public debt is esti- mated at 54% of GDP in 2019. In March 2019, the coun- try issued a €500 million eurobond (5.2% of GDP), but the risk of overindebtedness is deemed moderate. Benin is rated B+ by the rating agency Standard & Poor’s.
The high levels of poverty (40% of the population) and inequality reflect the noninclusiveness of the coun- try’s growth.
Tailwinds and headwinds
The outlook for the Benin economy is positive, with GDP projected to grow at 6.7% in 2020 and 6.6% in 2021. In agriculture, the implementation of the Strate- gic Plan for Agricultural Sector Development 2017–25
Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%)
targets improving agricultural productivity, developing agriculture value chains (cashews, pineapple, cassava, corn, rice, meat, milk), strengthening the resilience of farms, and establishing financing and customized agri- cultural insurance mechanisms.
Electricity generation capacity increased 67% between 2016 and 2019. Electricity represents approx- imately 0.8% of GDP, and the country remains highly dependent on Nigeria and Ghana, which provide about 90% of its supply. The Electricity Emergency Plan ($27 million) supports the country’s energy strategy, with the aim of increasing capacity from 354MW in 2019 to 1,400MW by 2035.
Inadequate infrastructure reduces the profitabil- ity of economic activity and is an obstacle to growth. The economy is characterized by low productivity and a predominantly informal economy, which reinforces structural imbalances and widens the gap between real and potential growth. The structure of the economy has remained more or less stable since 2000 (the primary sector accounts for 26.4% of GDP, the tertiary sector dominates at 49.2%, and the secondary sector is little developed at 16.4%).
The economy must address a trend decline in total factor productivity in agriculture and industry. Agricul- tural productivity remains low and the industrial struc- ture is based on agribusiness, manufacturing, con- struction, and public works. The weak performance of the education, healthcare, and social welfare sectors is notable. In addition, both population growth (2.8%) and underemployment (67.2%) are very high.
The country remains highly exposed to changes in the trade and currency policies of Nigeria, Benin’s leading trading partner and the recipient of 51% of its exports.
Benin is one of the eight countries of The West African Economic and Monetary Union (WAEMU).Bond issuance strategies vary from one state to another but most use the MTDS tool to develop their issuance strategy.
Benin’s public debt has been increasing rapidly since 2014. Total public debt (external plus domestic) increased from 30.5 percent in 2014 to 54.57 percent in 2018. The increase was primarily due to higher domestic debt driven by the scaling-up of public investment. At end-2018, about 80 percent of domestic liabilities consisted of government securities issued on the regional financial market . Benin issued its first Eurobond in March 2019, which is expected to change significantly the structure of the debt. The move from domestic borrowing towards more market-based international is accompanied by the implementation of a number of reforms, including:
- identifying and updating a targeted composition of debt (the share between domestic and external debt that strikes the right balance between costs and risks);
- providing clear indication of future plans regarding foreign and domestic markets debt issuance to meet the targeted debt composition
- better anticipating and planning for debt rollover and avoiding bunching of maturities establishing plans for active liability debt management (facilitated by the access to international markets);
- nurturing an active investors relationship, including by strengthening public financial management and public debt transparency practices (e.g., publishing information on the composition of public debt in a timely manner).
With a continued fiscal consolidation and strong economic growth,the public debt ratio is expected to start declining from 2019.
Governements securities issuance programs are focused on tenors from 3 months to 6-7 years and characterized by securities with repayments by amortization and deferred coupon as for the most o the WAEMU Countries.
As part of its market development activities, the UMOA Titres Agency has carried out a project to set up issuers' yield curves of the Public Securities Market of the UEMOA zone (MTP) with objective:
- to improve transparency on the MTP
- to contribute to better price formation during the auctions
- to make investors aware of the relationship between primary and secondary markets
- to provide local / international investors with a reference of price for securities issued by the States
The conditions for yield curves constructions have not yet all been observed on the (MTP). It was thus retained:
- in the short term, to develop a first version of yield curves taking into account the specificities of the MTP, while being sufficient evolutionary to support its development;
- in the medium / long term, define the necessary ways and means to Continuous improvement yield curves models following the evolution of the MTP.
Benin government securities yield curve extends to 10 years.
Yield curve calculation models
The yield curve is constructed on the basis of primary market returns. The model used is the Nelson-Siegel Svensson .
Yield curve managed by
Agence UMOA-Titres is responsible for the yield curve.
Agence UMOA-Titres website
Challenges in building an efficient yield curve
Fragmentation of the market
Narrow investor base: comprising homogeneous investors such as banks.
Low liquid secondary market
Guide to Buying Bonds
Procedures for market participation
The primary subscription of Treasury bonds and bonds is reserved for credit institutions, management and intermediation companies (SGI) as well as regional financial institutions with a settlement account in the books of the Central Bank.
Other investors, natural or legal persons, irrespective of the State in which they are established, may also subscribe to Treasury bonds and bonds on the primary and secondary market through credit institutions and SGI. located in the territory of the Union.
Emissions on the primary market of the MTP (Marché des Titres Publics) are made by auction.Each issuance should be advertised at least 7 days before the auction by describing the issuance characteristics. Bidders submit to the Central Bank, sealed in a ballot box reserved for this purpose, a submission form specifying the amounts and the interest rates or the price offered. Submissions may also be made electronically in the conditions defined by the Central Bank.
Later than one hour after the deadline for bids submission, the National Directions of the BCEAO transmit electronically, by fax or any other means of rapid communication accepted by the Central Bank, the main submissions to the principal agency of the BCEAO, which is organizing the auction.
Treasury bills are eligible for refinancing by the Central Bank. Investors and the Central Bank may buy or sell Treasury bonds on the secondary market, awarded by private treaty. In this context, they are required to post the purchase price and sale, which they are willing to transact.
Bond issues can be done by syndication managed by CREPMF.[http://www.crepmf.org/Wwwcrepmf/Reglementation/pdf/Instructions/INSTRUCTION_N36_2009.pdf]
Treasury bonds can be traded on the secondary market. As such, they can be exchanged at the Regional Stock Exchange (BRVM) or outside the BRVM.
On the primary market by auction, the settlement date is T+1 of the issue date.On the secondary market, the payment of purchases of Treasury bonds and bonds by the primary subscribers is made by debiting their settlement account with the Central Bank on the value date of the issue of these securities. settlement date is the first business day following the conclusion of the transaction for domestic transactions and the third business day following the conclusion of the transaction for transactions between two (2) Member States. The Contracting Parties are free to agree on a term greater than these minima for the settlement of transactions, IF the instructions given by both parties are identical, the transaction is directly offset on the agreed value date. In the event of a discrepancy, the Central Bank suspends the transaction and notifies both parties of this decision for correction.
Treasury bills and Treasury bonds incomes are tax-free throughout the territory of the Member States of the WAEMU. But for non-members, the tax rates are different from one country to another. In Benin, the tax rate one securities income is equal to maximum 6%.
|Standard and Poor’s||B+||Stable|
The securities market has a system of Specialists in Treasuries. The credit institutions and the SGIs may be approved as SVT under the conditions specified by an Instruction of the Central Bank. As such, they must respect certain commitments that confer special advantages. These commitments and benefits are specified by an instruction from the Central Bank.
List of Primary Dealers
BANK OF AFRICA BENIN
Avenue Jean-Paul II
BANQUE REGIONALE DE MARCHES
IMMEUBLE LA ROTONDE RUE DR THEZE X ASSANE NDOYE
BIBE FINANCES AND SECURITIES
Avenue Jean-Paul II, Immeuble SIB, 5ème étage
CORIS BANK INTERNATIONAL
Avenue Steinmetz, 122 Parcelle ZA
RUE DU GOUVERNEUR BAYOL
CARRE 211 ST MICHEL, IMMEUBLE SGI
UNION TOGOLAISE DE BANQUE
BOULEVARD DU 13 JANVIER NYEKONAKPOE
Openness to international investors
No restrictions prevent foreign investors from trading in the public securities market. They may subscribe to Treasury bonds and bonds on the primary and secondary markets through credit institutions and SGI located within the Union.
There are no significant limits on foreign investment nor are there generally differences in treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment.
Restriction on FX and profit repatriation
WAEMU has unified foreign exchange regulations. Under these regulations, there are no restrictions for transfers within the community, and designated commercial banks are able to approve routine foreign exchange transactions inside the community. The transfer abroad of the proceeds of liquidation of foreign direct investments no longer requires prior governments approval.