Author: Dirk Kohnert
Affiliated organization: German Institute of Global and Area Studies
Type of publication: Book
Date of publication: January 2019
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Introduction
Economic growth in Togo has remained stable [since 2017] at about 5% per annum. Public investment in infrastructure and increases in agricultural productivity, notably of export crops, have been the key drivers of economic growth. However, growth remains vulnerable to external shocks and the climate and has not been inclusive. Positive growth was overshadowed by increasing inter-personal and regional inequality as well as an increase in extreme poverty. Moreover, money-laundering, illegal money transfers and trafficking grew alarmingly. The business climate has improved considerably nevertheless. Though the World Bank still defines Togo as low-income, fragile state, the government aims to achieve the status of a developing economy.
Level of Socioeconomic Development
Although the current socioeconomic situation in Togo remains precarious, it improved considerably over the past decade. Thus, Togo’s HDI trend progressed over the past three decades from 0.4 in 1990 to 0.5 in 2017. Nevertheless, Togo was still ranked at the bottom (rank 165) of 189 countries surveyed in 2017. The HDI of 0.503 was also below the average of 0.537 for Sub-Saharan countries.
Despite strong agricultural production, economic growth was estimated to have fallen from 5.1% in 2016 to 4.4 % in 2017. The socio-political tensions in the aftermath of huge violent anti-government demonstrations in August 2017 were increasingly taking a toll on economic activities. Moreover, growth was not inclusive. Poverty remained at a high level, with 55.1% of the population living below the poverty line in 2017, though the poverty rate decreased since 2011 when it was 59%.
In addition, there was an alarming variation in poverty between the so-called leading and lagging areas of Togo. Poverty in the far North of Togo was up to three times as high as in the South. Poverty rates observed varied between 15% in the top three prefectures (Golfe, Lacs, and Lomé) and more than 90% in the bottom three (Tandjoaré, Akebou, and Doufelgou). Moreover, about half of Togolese people had neither access to pipe born drinking water nor to electricity (rural population’s access to electricity with 20% even less), and the country had just one doctor per 14,500 inhabitants.
Despite strong agricultural production, economic growth was estimated to have fallen from 5.1% in 2016 to 4.4 % in 2017. The socio-political tensions in the aftermath of huge violent anti-government demonstrations in August 2017 were increasingly taking a toll on economic activities.
In addition to the regional-, the inter-household income inequality was increasing. The Gini coefficient for Togo increased from 0.34 in 2013 to 0.43 in 2017 nationwide. The rural exodus continued. About 40% of the population live in urban areas, an increase of 160% between 1990 and 2014. The inequality is more pronounced in urban centers than in the countryside. Urban unemployment and underemployment persist, with an estimated 33% of the urban population either unemployed or underemployed. Official rates of unemployment 1.8% are questionable.
The subsistence economy in rural areas, the potential of the informal sector in urban areas, and remittances from expatriated Togolese have helped to avoid a more severe crisis. Last, but not least, Togolese citizens lack adequate freedom of choice and an effective decentralization policy including a real devolution of power and resources.
Foreign Aid and Investment in Togo
Togo remains dependent on development aid, though net official development assistance received (current US$) (millions) decreased substantially in the past decades from 258.2 in 1990 to 165.0 in 2017. Europe (EU, France, Germany) is by far the biggest provider of development assistance, besides China.
Togo has long-standing good relations with China since 1972. Sino-Togolese cooperation in recent years included infrastructure projects, like the stadium of Kégue at Lomé, the new international airport of Lomé, the new parliament building in Northern Lomé, and the big bypass road to link the harbor of Lomé directly to the Ghanaian border at Noépé. The deep-water harbor of Lomé is an ‘anchor-point’ in China’s ambitious Belt and Road initiative in West Africa. In addition, China provided for the construction of a modern TV-complex for the state-run Togolese television (TVT) and Radio Lomé.
Togo’s World Banks Doing Business indicator improved little over the past ten years (in 2018 it was ranked 156 of 190 economies worldwide)
Additionally, at the end of 2017, the AfDB provided an additional 11.4 m € under the Agribusiness Promotion Support Program (PAGAP) meant to improve conditions for inclusive growth, the development of agribusiness, the reduction of the agricultural trade deficit, and the improvement of the tax burden ratio.
Barriers and Improvements to Investment and Private Sector Activities
Togo today strives to transition from a low income, fragile state to an emerging economy. Yet, Togo still lacks the foundations for credible market-based competition and good governance, although there have been undeniable improvements.
Togo’s World Banks Doing Business indicator improved little over the past ten years (in 2018 it was ranked 156 of 190 economies worldwide). Togo’s political and administrative operating environment constituted a barrier to the growth of private direct investment and private sector activities. The most significant improvement in 2016/17 was Togo’s improved access to credit information by launching a new credit bureau. Major deficiencies in property registration, tax paying, enforcing contracts, and protecting investors impeded FDI. However, over the past decades foreign direct investment improved steadily, from $18 million in 1990 to $146 million in 2017. The allocation of foreign investment is crucial for investments in the country’s neglected infrastructure.
In summary, Togo’s political and administrative operating environment constituted a barrier to the growth of private direct investment and private sector activities. A thorough reform was prevented by vested interests, lacking administrative and judicial transparency and widespread corruption.
Liberalization of Foreign Trade
Foreign trade is liberalized in principle, but significant limitations persist. Togo’s major agricultural exports are cotton, cocoa and coffee. These exports generate about 40% of export earnings, with cotton being the most important cash crop. Moreover, Togo is among the world’s largest producers of phosphate. Re-exports are significant as well, as Togo is one of West African’s most important transit-economies, along with neighboring Benin. Therefore, foreign trade is decisive to Togo’s economy.
Economic Performance
Togo still belongs to the low-income countries with a per capita income of (US$ 995 or less). However, economic growth remained strong at about 5%, driven by investment in infrastructure and the key cement and clinker sector. Inflation has been below 2% since 2012 (when it surpassed 3% per annum). Foreign direct investment has been around 2% of the GDP since 2012 as well. Public debt, however, has increased from 44.5% of GDP at the end of 2011 to an estimated 76.9% of GDP at end of 2017.