Togo
Selected Issues

This Selected Issues paper examines civil service employment and reform in Togo. The paper analyzes overall developments in civil service employment and wages. It looks in some detail at employment in the health and education sectors, which together account for almost two-thirds of the civil service, and identifies some of the key problems that also apply to personnel management in other areas. The paper identifies some of the major problems facing civil service management in Togo, and examines the revitalized reform efforts intended to resolve them. Public enterprise reforms in Togo are also examined.

Abstract

This Selected Issues paper examines civil service employment and reform in Togo. The paper analyzes overall developments in civil service employment and wages. It looks in some detail at employment in the health and education sectors, which together account for almost two-thirds of the civil service, and identifies some of the key problems that also apply to personnel management in other areas. The paper identifies some of the major problems facing civil service management in Togo, and examines the revitalized reform efforts intended to resolve them. Public enterprise reforms in Togo are also examined.

I. CIVIL SERVICE EMPLOYMENT AND REFORM IN TOGO1

A. Introduction

Togo’s civil service has evolved considerably over the last ten years. Employment and the wage bill have been brought under control, largely through a freeze on recruitment and on nominal wages, but at the cost of serious staffing imbalances, particularly in the social sectors, and a decline in the quality and coverage of the services provided. A first approach at a more comprehensive reform of the civil service, based on a medium–term assessment of the needs of the different sectors and a detailed estimation of the quantitative and qualitative implications, was launched in 1992 in the context of the first arrangement under the enhanced structural adjustment facility (ESAF). However, this reform process was derailed by the sociopolitical upheavals of 1993. Until 1997, the management of the civil service has consisted largely of limiting the overall wage bill by maintaining the general hiring and nominal wage freeze, as was the case in the mid–1980s, accentuating in many respects the problems that persisted from that period. In 1997, however, the authorities undertook a series of measures to strengthen civil service management, including a detailed census of government employment, and the definition of a comprehensive strategy intended to guide personnel policy through the medium term. This chapter first examines overall developments in civil service employment and wages. It then looks in some detail at employment in the health and education sectors, which together account for almost two thirds of the civil service, and identifies some of the key problems which also apply to personnel management in other areas. Finally, it identifies some of the major problems facing civil service management in Togo, and examines the revitalized reform efforts intended to resolve them.

B. Overview and Developments

Since the early 1980s, the Togolese authorities have undertaken measures to control the evolution of the civil service wage bill. Nominal salaries in the civil service were frozen between 1982–87, while overall civil service employment was reduced by just over 5 percent. As a result, the wage bill was held to about CFAF 29 billion (roughly 35 percent of current expenditure, or 24 percent of overall revenue). Nominal wages were raised by 5 percent in 1990, together with a 25 percent hike in family allowances for government workers, increasing the overall wage bill by some 19 percent. A freeze on salaries and civilian promotions was reintroduced in 1989. The freeze on promotions was lifted in 1992 and again in 1994, travel allowances were revised upward, but there was no increase in base salaries after 1990 until a general wage hike of 5 percent in July 1996.2 In real terms, therefore, the wage bill per civil servant has declined by some 14 percent since 1990, in step with the average for sub–Saharan Africa but substantially more than in other CFA franc countries (Table 1). The wage bill rose markedly in the period of sociopolitical upheaval 1991–93 relative to total revenue (excluding grants) or current expenditures, as revenues and nonwage outlays fell dramatically; however, the share of the wage bill in current expenditure remained close to the CFA franc average throughout the 1990s. Moreover, the differential between government wages and average incomes in the country (measured as a multiple of per capita GDP) is substantially smaller than the CFA franc zone average and relatively close to the average for sub–Saharan Africa as a whole. However, if the contractual employees (non–civil servants) and their much lower average salaries are included, the overall average wage level for government employment in Togo has declined much more rapidly than the average for sub–Saharan African or CFA franc countries (Box 1).

Table 1.

Togo: Government Wage Bill Indicators, 1986-96

(Excluding military personnel)

article image
Sources: IMF.

With the exception of the period 1992–94, overall civil service employment has declined steadily since 1990, largely owing to attrition, as new net recruitment into the civil service was stopped (Table 2). By end–September 1997, overall civil service employment was almost 3.5 percent lower than at end–1990. As a result of this decline and the high rate of demographic growth, the number of civil service employees per thousand of the population fell from 10.4 in 1986 to 7.4 in 1996. This rate was substantially below the average for sub–Saharan Africa, but still considerably higher than the average in other countries in the CFA franc zone with arrangements under the Enhanced Structural Adjustment Facility (ESAF), where civil service downsizing reduced the ratio from 7.5 in 1991 to 5.6 in 1996.

Table 2.

Togo: Government Employment by Category, 1990-97 1/ General Budget and Autonomous Budgets

article image
Source: Ministry of Employment Promotion and the Civil Service: Directorate of the Computerized Management of Personnel and Employment.

Excludes personnel hired under the Employment and Training Program (PEF), the auxiliaries in education, and the military.

While net recruitment into the civil service has fallen considerably (Table 3), the most pressing needs have been partly addressed by continued recruitment through two special programs, the Employment Training Program, PEF (Box 2) and, in the education sector, the Program in Support of the Management of Education (PAGED). While data on employees in these programs are less comprehensive than those maintained on civil service employees, there are presently between 6,000 and 7,500 additional employees on the public payroll as a result of these programs.

Table 3.

Togo: Retirement and Recruitment in the Civil Service, 1994-98 1/2/

article image
Source: Ministry of Employment Promotion and the Civil Service: Directorate of the Computerized Management of Personnel and Employment.

Including public enterprises, public administrations, national and international organizations, and autonomous agencies.

Net variation may be different from the variation in the number of employees in Table 1, owing to departures due to reasons other than normal retirement.

The Calculation of Wages in the Civil Service

Government employees are hired either as civil servants (fonctionnaires), covered by the general code of civil service employment and the treasury-managed pension fund (Caisse de Retraite); as permanent employees (agents permanents de l’Etat), with a much lower juridical status and covered by the ordinary social security fund (Caisse Nationale de Sécurité Sociale); or as non–permanent contractuals and décisionnaires.

Civil servant jobs are classified into five categories (A1, A2, B, C, D), with different wage scales within each category. Base wages are set by ascribing a range of index points (points indiciaires) to each scale and category—since January 1, 1996, each index point has the value of CFAF 873.79 per year—supplemented by a variety of additional premiums and allowances. Budgetary projections for the wage bill for each ministry include provisions for seniority advancement and promotions across categories. After two years of service, civil servants advance automatically to the next scale within each category on the basis of a simple administrative decision. Advancement to the next highest category requires a promotion decision by a Wage Commission, based on the quota of promotions set at the beginning of each year for the respective ministry, and a table of merit and equalization factors applicable across ministries. This avancement au choix can thus be refused due to the nonavailability of posts at that level or for lack of budgetary resources.

Permanent employees are hired into six categories, each with four regular scales (A through D) and one exceptional scale. The minimum and maximum base wage set for each scale in each category (the system of index points does not apply to these employees) is supplemented by a seniority premium based on length of service (see Table 5). All advancements are based on administrative decisions made in the respective ministry in coordination with the civil service ministry; there is no wage commission for the avancement au choix across categories.

Table 4.

Togo: Wage Scales in the Civil Service, 1989- 1/

(in CFA francs per month)

article image
Source: Ministry of Employment Promotion and the Civil Service: Directorate of the Computerized Management of Personnel and Employment.

Including other allowances and allocations. The wage scales have been constant since the last nominal wage increase of 5 percent of July 1996.

Table 5.

Togo: Seniority Premiums for Permanent Employees as of January 1, 1996

(in CFA francs per month)

article image
Source: Ministry of Employment Promotion and the Civil Service: Directorate of the Computerized Management of Personnel and Employment.

At end–September 1997, over 55 percent of the employees on the roster of the civil service ministry (i.e. excluding employees paid off–budget) were assigned to the three ministries responsible for health and education in Togo, down from almost 60 percent in 1990. This reflects the changing composition of employment, particularly in these sectors. As part of the policy of controlling the wage bill, departing civil servants have not been fully replaced by new recruits into the civil service. The budgetary savings have been used to finance the wages of a rising number of contractual employees, particularly in health and education, who are paid at substantially lower rates and do not have the right to the various indemnities and allowances accorded to civil servants.

The Employment Training Program (PEF)

The Employment Training program was initiated in 1991, with the support of a bilateral donor, as a means of providing employment opportunities to qualified graduates who would otherwise have been excluded from the civil service by the general hiring freeze. Between 1992 and 1994, 2,740 persons were hired (including 1,525 teachers and 258 health care personnel) at wages ranging from 20,000–25,000 CFAF per month for secondary school leavers, to 55,000–65,000 CFAF per month for university graduates. The base salaries are roughly half the salary level of regular functionaries, and no social benefits or other nonwage allowances are paid. With the withdrawal of donor support in 1993, the wages of those workers whose positions had been made permanent were taken over by the government and budgeted separately from regular wage costs.

Comparison of monthly salaries in the PEF (July 1995)

article image
Source: Union Nationale des Agents du Programme Emploi-Formation (UNAPEF).

Excluding education sector personnel.

Excluding promotions owing to four years of experience.

Chart 1
Chart 1

Togo: Share of the Social Sectors in Total Government Employment, 1990-97

(in percent)

Citation: IMF Staff Country Reports 1998, 021; 10.5089/9781451836554.002.A001

Source: Ministry of Employment Promotion and Civil Service.

C. Employment in the Health Sector3

Since 1990, the number of workers in the health sector has declined continuously as a result of the general hiring freeze in the civil service. Moreover, since the sociopolitical crisis of 1993, some qualified personnel have left the government health service to enter private practice, while others have emigrated. Total civil service employment in the sector thus declined by 17.3 percent between end–1990 and end–September 1997.4 Given the rapidly rising population, the ratio of health care personnel has declined from over 1,200 per million inhabitants in 1987 (virtually all of whom were civil servants) to under 1,000 in 1995, of whom almost one third were PEF workers.

The functional distribution of employment favors secondary and tertiary care—the share of the workers paid by the central budget assigned to primary health care is less than the share of those at higher levels of care—and the administrative apparatus is somewhat heavy.

Functional Distribution of Health–Sector Personnel, end-1994

article image
Source: World Bank, Togo: Revue des Dépenses Publiques, February 1997.

There is also a substantial regional disparity in the distribution of health care personnel.5 Over 50 percent of qualified personnel work in Lomé, where almost all of the private health care facilities are located. Outside Lomé, there is severe understaffing at the primary health care facilities, and up to 20 percent of them are entirely without qualified personnel.6 In many cases, these facilities have ceased to function or are kept open only by private payment of the wage costs of some of the personnel. In part, this regional disparity reflects the difficulty of recruiting trained personnel to posts in the outlying areas and the continued transfer of personnel toward the cities. Moreover, the availability of public health care is reduced by the private and informal activities of government health care personnel, given the more attractive remuneration of these activities.

The management of personnel in the health sector is complicated by the lack of an overall strategy. Different types of personnel are managed by different agencies according to the type of facility concerned; there are no standard professional norms set for the various types of health care activities and facilities; and budgeted posts are not functionally linked to particular facilities or even to regions of assignment.

On the basis of its analysis of the sector, the 1996 public expenditure review drew a series of conclusions for reinforcing the efficiency of the health sector. These include (i) increasing staffing at primary health care facilities, while giving priority to the poorer regions of the interior; (ii) strengthening personnel management and exploring the possibility of redeploying employees from administrative functions and tertiary facilities toward primary health care; (iii) exerting closer control over reassignments and transfers to ensure an appropriate regional distribution of health care personnel; and (iv) decentralizing personnel management to increase the efficiency of assignments.

The 1998 budget envisages the establishment of a program of recruitment of additional health care personnel in a program similar to the PAGED in the education sector, at substantially lower wages than in the civil service. The regional disparities are to be addressed in the context of the global strategy for civil service employment, in which administrative decentralization and regional redeployment of civil servants are key elements.

D. Employment in the Education Sector7

The quality of public education provided in Togo has deteriorated substantially since the late 1980s under the combined effect of the general policy of not replacing departures from the civil service and the high population growth. The number of civil servants employed in the education sector (including teachers in denominational schools8) declined from 15,802 in 1990 to 14,887 as of end–September 1997, leading to severe understaffing, particularly in rural areas. Many schools have therefore resorted to hiring contractual teachers at substantially lower salaries which are paid from different sources, including through voluntary school fees paid by parents’ associations.9 Moreover, given the inability of the state to meet the demand for education, there has been a notable increase in the number of “local initiative” schools (écoles d’initiative locale), organized by community associations and financed by the voluntary payment of fees, occasionally with the support of nongovernmental organizations and other donors.10

The Program in Support of the Management of Education (PAGED)

The PAGED program was created in October 1995, with the support of the World Bank, in response to the serious deterioration in the level of staffing in education. It provided for the creation of regional support funds for primary education, intended primarily to pay the wages of the contractual teachers financed through the parallel school fees at the village level. A special status was created for these teachers (enseignants auxiliaires), guaranteeing them a salary equivalent on average to some 40 percent of the salary of teachers in the civil service, depending on the degree of qualification, but without promotion possibilities, pension rights, or other nonwage allocations. The support funds are to be financed by the budgetary savings resulting from departures from the civil service, 40 percent of the obligatory school fees paid by parents, and a contribution from the PAGED credit itself.

The PAGED program envisaged the absorption of 3,750 contractual teachers in 1996. However, although the wages paid were well below the normal level of wages for teachers in the civil service, they were still four to seven times higher than the wages paid by the village or parent associations, and over 6,000 teachers had registered with the program by end–1996. At end–September 1997, there were 8,240 contractual teachers at all levels of education, of which 6,407 were at the primary level covered by the PAGED, receiving CFAF 3 billion in wages (Table 6).

Table 6.

Togo: Number and Wages of Auxiliary Teachers, 1995-97 1/

article image
Source: Ministry of National Education and Scientific Research, Project in Support of the Management of Education (PAGED).

Excluding social security contributions to be paid by employer.

Salary costs in 1995 were CFAF 768.3 million, paid by PAGED (CFAF 521.8 million) and the Employment and Training Program (CFAF 246.5 million).

The rising importance of contractual personnel is also reflected in the structure of the personnel costs.11 Prior to 1992, civil servants accounted for 91 percent of personnel costs, with the rest going to the salaries of the teachers in denominational schools; by 1996, however, contractual teachers accounted for 11 percent of total expenditures on personnel in the education sector. There have been no increases in the base salaries paid to teachers in the civil service since 1990, although promotions, seniority premiums, and various other allocations have increased average effective salaries. However, as the contractual teachers are paid much lower salaries than the civil servants and do not benefit from these other elements, the average increase in personnel costs in the education sector over the period 1988–95 has been lower than in the civil service as a whole (35 percent, versus 40 percent).

The freeze in public recruitment and the high population growth have led to a serious deterioration since 1984 in the ratio of pupils to teachers, while the budgetary constraints have prevented the construction of a sufficient number of classrooms. Although the hiring of contractual teachers has improved the pupil–teacher ratios somewhat since the early–1990s, the situation is noticeably worse than ten years ago.

Pupil–Teacher Ratios in Public Education, 1984-95

article image
Source: MENRS; and World Bank, Togo: Revue des Dépenses Publiques, February 1997.

There are also serious regional disparities within these national averages. Some areas, including Lomé, have a surplus of teachers relative to the number of courses offered, and the number of courses and the number of classrooms are balanced. By contrast, the deficit of teachers to courses offered is as high as 60 percent in the Centrale region, and the deficit of courses to classrooms reaches 40 percent in the Savannah region. Similarly, the regional pupil–teacher and pupil–classroom ratios vary substantially on either side of the national averages, particularly at the preparatory and elementary levels (see table below).

Pupil–Teacher and Pupil–Classroom Ratios by Level of Instruction, 1994–95

article image
Source: MENRS; and World Bank, Togo: Revue des Dépenses Publiques, February 1997.

The substantial understating, particularly at the primary level, and the shortages of classrooms and material at both the primary and secondary levels have led to severely overcrowded classes and a low rate of return on public education expenditures, as evidenced by the high dropout and repeater rates.12 Moreover, many of the newly recruited auxiliary teachers lack pedagogical training, the pedagogical support available at the administrative level is weak, and substantial outlays for the rehabilitation of existing structures and for teaching materials are needed to achieve the targeted increase in the efficiency of education.

The government’s sectoral policy for education of 1993 provides for the reinforcement of the regional management of education through the creation of regional education directorates. Also, the regionally decentralized education support funds created in the context of the PAGED aim at a better mobilization and utilization of local resources to finance the auxiliary teachers until a new regional teaching corps can be established.

E. Problems and Outlook for Reform

As a result of the policy of freezing net recruitment over the last few years, the Togolese civil service faces a range of problems that will need to be addressed soon if a further deterioration in the quality of public services is to be avoided. First, demographic pressures and the insufficiency of budgetary resources since the late 1980s have created a pressing need for increased and improved staffing in priority areas, such as education, health, macroeconomic management, and the judiciary. Moreover, the long duration of the recruitment freeze has created a potential problem with regard to the age profile of the civil service. It is to be expected that a significant number of experienced civil servants will be leaving service in the next few years, and their replacements will need to be hired and trained in the near future so as to avoid a deterioration in the quality of management and services, and to strengthen the government’s capacity to formulate and effectively implement social and economic policies.

The nominal wage freeze has contributed to greater control over the wage bill, but it has led to declining purchasing power among civil servants, both in absolute terms and relative to per capita incomes. This trend is not conducive to attracting and retaining a qualified and motivated staff, particularly in key areas. Moreover, while the use of auxiliaries and contractuals allows the recruitment of many more staff than would be otherwise be possible, it is not a definitive solution to the problem. These employees are likely eventually to claim an equalization of their wages with those paid to civil servants for the same jobs. Moreover, as indicated above, many of the new recruits in education lack pedagogical training, which may negatively affect the quality of education provided, particularly in the absence of adequate teaching materials.

As noted above, the regional distribution of government employment is highly disparate, particularly with regard to health and education. This disparity reflects the lack of a clear assignment of civil service posts to specific regions or locations, and the relative ease of transfer from rural to urban areas. It is also unclear whether the actual posts and their responsibilities are suitably distributed to address the present needs of the country—there may be a significant potential for redeployment of posts from overstaffed areas to functions with serious understaffing, particularly in health and education. However, there is presently no overarching policy of matching skills to the requirements of individual posts, so as to increase the efficiency of the services provided. It may be necessary to consider the use of special incentives, in the form of wage supplements, housing allowances and other in–kind benefits, to attract skilled workers to the understaffed functions or areas.

The recruitment of temporary workers by individual ministries has often been somewhat haphazard and not centrally coordinated. The wage costs of these temporary workers is thus often inconsistent with the budgeted wage bill of the ministry concerned. Also, these workers often do not benefit from training programs or career development opportunities, limiting their ability to contribute to enhancing the overall efficiency of the civil service. Moreover, while in many respects the PAGED program has functioned better than expected, recruitment has been driven largely by the amount of budgetary savings generated by departing civil servants, and due regard has not been paid to the long-term sustainability of the additional wage costs.

Finally, the management of both civil service employment and the wage bill is complicated by the lack of clear identification of all wage costs in the budgetary allocations, and the absence of a central coordination between the various programs for recruiting contractual workers and the civil service ministry.

Reform Efforts

Reform measures taken in the late 1980s focused exclusively on strengthening control over the wage bill. The payroll rosters were examined to remove ghost workers, and the calculation of wages and allowances was made more transparent. However, there was no real attempt to define a strategy to enhance the flexibility and efficiency of the civil service or to ensure its continued ability to provided the required services—as indicated above, the first such approach was hindered by the outbreak of sociopolitical turbulence in 1992.

A more thorough approach to civil service reform was launched in early 1997 with a comprehensive census of civil service employment during January–March. In order to determine the extent of overstaffing or understaffing in the various ministries and the eventual scope for redeployment, each ministry prepared in June 1997 a staffing plan, indicating the position and function of each employee, as well as the number and qualifications of the employees needed to conduct the various functions of the ministries. Also, in the third quarter of the year, the authorities completed the harmonization of the payroll rosters of the civil service ministry, which is responsible for managing the civil service, and the finance ministry, which calculates and pays the wages and salaries. In addition, the computerization of the relevant files is under way.

These elements have provided the framework for the elaboration of an overall strategy for civil service employment, intended to ensure a level of civil service staffing consistent with the required quality of public services to be provided, especially in health and education, and reflecting the new role of the government. This strategy is designed to define precisely the functions and responsibilities of each ministry and implement a monitoring system; to reinforce the competence of the central administration, and transfer a part of this responsibility to the regional level; and to develop human resources in the civil service through appropriate training, adequate material resources, and a reliable system of career development to foster the motivation of staff. The guiding principle is the decentralization of the government administration—shifting a large part of responsibility for the formulation and implementation of government policy to the local level, with accompanying reforms to ensure the financial and technical autonomy of local authorities.

The main elements of the strategy were decided on by the government in late 1997:

  • The size of the civil service will be reduced by a total of 5,000 persons by the year 2000 through the suspension of recruitment for three more years, and the introduction of a voluntary departure program, aimed at achieving 3,000 departures over the period. The priority sectors of health and education will continue to benefit from specific recruitment measures in the context of decentralization.

  • The administration will undergo a general reorganization consistent with the redefined role of the state, aimed at improving communication techniques and administrative procedures. A system of internal control of the ministerial departments will be implemented to monitor performance.

  • The competencies and objectives of ministries will be redefined, involving a restructuring of the departments, with the redefinition of posts and the reorganization of work processes within the ministries.

  • Civil servants will be redeployed to understaffed functions, both within and among ministerial departments and toward the local authorities. The objective is eventually to transfer 10,000 agents to the responsibility of the local authorities.

  • Also, the management of civil servants will be rationalized by centralizing ultimate responsibility at the civil service ministry and reinforcing its management capacity, while giving responsibility for training and career development to special units within each ministry.

The timetable for implementing the strategy foresees the creation of an appropriate planning structure for personnel management within the civil service ministry by February 1998. The general reorganization of the ministries will culminate in the presentation of new organizational charts by July 1998, and the redefinition of the authority and responsibilities of each ministerial department and of positions and duties within each ministry by September 1998. The timetable and the nature of the incentives to be offered under the voluntary departure program will depend on the availability of resources, and have not yet been determined.

A key feature of the overall strategy is the centralization of personnel management at the civil service ministry. Based on the redefined objectives and organizational charts of the ministries, the civil service ministry will be the focal point of all recruitment and redeployment decisions, helping to reduce the difficulties caused in the past by the uncoordinated hirings. This ministry will verify the consistency of staffing plans with the objective of providing the required services, and that the funding of local authorities is appropriate to their greater responsibility for civil servants in the framework of the decentralization. It will play a major role in determining the appropriate regional distribution of positions and ensuring that recruitments and transfers are consistent with these requirements. The civil service ministry will also be responsible for determining the skills profiles needed, and for coordinating the necessary recruitment, training, and development efforts in the individual ministries, while remaining within sustainable limits for the overall wage bill.

The overall strategy is thus designed to address the lack of coordination in personnel decisions, and provides for the development of skills profiles that will guide hiring and redeployment decisions. The planned decentralization of the administration is intended to respond to the regional disparities that affect the civil service, although care must be taken that it is implemented in a manner consistent with the centralization of civil service personnel management at the civil service ministry. However, the strategy does not address specific issues of remuneration, such as the wage differential between civil servants and other contractual workers performing essentially the same functions, nor does it provide for an explicit incentive structure to ensure appropriate staffing levels in all regions. The implementation of the strategy will also have to take into account the recruitment, promotion, and career development of the next generation of senior civil servants, while respecting the overall objective of reducing the size of the civil service. This will require that personnel decisions, including the determination of training requirements and the elaboration of training programs, are made in a framework that ensures consistency with the medium-term budgetary outlook and projected civil service requirements.

II. PUBLIC ENTERPRISE REFORM IN TOGO

A. Introduction

Togo’s structural adjustment efforts over the last ten years, supported by lending from the World Bank and the Fund, have contained an important element of public enterprise restructuring and reform. The implementation record during of the first years of the reform was largely disappointing. It was characterized by the lack of a comprehensive strategy to guide the restructuring, often complicated by the absence of a full commitment to all aspects of the necessary reforms. Frequent slippages in the preparation of divestitures and the lack of provisions for the resources necessary to conclude them satisfactorily left many operations incomplete. With the support of the World Bank, the public enterprise reform effort was substantially redefined and expanded in 1994. Although there were again major slippages and delays in implementation, there has been major progress during the last year, as several operations that had seemed stalled at the end of 1996 were concluded. The authorities have also recently negotiated with the World Bank the key elements of the next phase of their public enterprise restructuring and privatization program. Upon its completion, the nature of the government’s involvement in economic activity in Togo will have been fundamentally altered—the government will have withdrawn from direct involvement in the financial sector and all marketing and productive activities, and will have yielded control over the public utility sector to independent private management.

This chapter examines the restructuring and reform program since its inception in 1983. It describes the initial approach and content of the first phases of the program, as well as the success achieved in implementing its various aspects. It also presents the salient features and the implementation record of the 1994 extension to the program, and sets out the major elements of the latest divestiture and restructuring program adopted in September 1997. In a subsequent section, the chapter presents the principal shortcomings of the reform efforts to date, as a means of explaining its successes and failures; and discusses the key problems that remain to be resolved, in order to achieve a successful conclusion to the reform of the public enterprise sector.

B. Contextual Overview

At the beginning of the 1980s, Togo had a total of 74 enterprises in all sectors of the economy, many operating under monopoly conditions, with fixed prices and protection from import competition. The electricity, water and telecommunications companies and the Autonomous Port of Lomé were in government hands; flour milling, cement production, phosphate mining, and gas distribution were dominated by fully or partially stated–owned firms; in agriculture, state enterprises held the monopoly on the marketing and export of the principal cash crops, and were responsible for grain distribution and forestry activities; and in the financial sector, the government owned and operated several financial institutions, including the two biggest banks in Togo, the agricultural credit agency, and the major insurance firm. There was also a wide range of smaller enterprises operating in manufacturing, agricultural and industrial development, domestic wholesale and retail distribution, printing, textiles, petroleum importation and distribution, and construction.13

The decisions to create most of these enterprises or to invest public resources in their extension or rehabilitation generally reflected the then prevailing ideology of state interventionism, as well as social considerations (e.g., creation of employment), or political objectives. They were also motivated by the authorities’ perception that the underdeveloped private sector would be incapable of providing the impetus needed to accelerate development. In most cases, these firms operated from monopoly positions in the various sectors without clearly defined commercial goals or due regard for financial discipline and viability. Their relationship with the state was not well delineated in an appropriate institutional framework.14 Appointments to senior positions were often based on political considerations, and the government itself frequently intervened directly in management decisions. Enterprise managers were not held accountable for the performance of the enterprises, which for the most part did not have clearly defined performance objectives.

As a result, the financial situation of many of the public enterprises deteriorated continuously throughout the 1980s. Several of the enterprises were from the outset loss-making and could be sustained only by means of high protection and operating subsidies from the state. Moreover, owing to the inward–looking development strategy espoused at the time, the enterprises’ activities were not oriented toward generating the foreign exchange necessary to service the external debt incurred on their behalf,15 nor could they finance with their own resources the necessary investments. Other enterprises, by contrast, were in a position to generate substantial financial surpluses which could have been used for investment purposes, particularly the monopolies in phosphate mining, agricultural exports and the public services. However, these firms were for the most part not subject to the usual tax regime and the payment of regular dividends, but were required to make specific “contributions” (both directly to the budget and toward the off-budget financing of government activities) which prevented normal use of the financial surpluses (Box 4). Moreover, during the years of crisis 1991–93, the resources constraints faced by the government led to the accumulation of substantial net payments arrears to the public service enterprises, including the social security system and with regard to loans and advances made by the public enterprises to the budget.16

C. The First Phase of Public Enterprise Reform, 1983-94

The Overall Strategy

Aware of the lack of profitability and efficiency of public enterprises, as well as of their cost to the government budget (in the form of subsidies or tax privileges), the authorities in 1983 initiated a program of divestiture from thirty enterprises, with the support of the World Bank (Table 7).

Table 7.

Overview of the Program of Divestiture from the Public Enterprise Sector

(As of July 1990)

article image
Source: Ministry of Industry and State Enterprises.

The state intended to give preference to Togolese nationals in the privatization of these enterprises.

The divestiture program was based on four elements:

  • the liquidation of chronically deficitary enterprises that could not be rehabilitated;

  • the sale of assets in enterprises with difficult, but still viable financial situations;

  • the leasing of assets or the opening of the capital of enterprises to private sector participation as an intermediary step where the nature of the activity of the enterprise did not justify an outright sale, or where the importance of the assets would have implied too high an investment for the buyer; and

  • the sale of government shares in the mixed–ownership enterprises.

The Financial Relations between the State and the Public Enterprise Sector1

The receipts of the government from the public enterprise sector consist of tax revenue (import and direct taxes), the reimbursement of external loans contracted on behalf of the enterprises; proceeds from the sale or lease of assets; dividend payments; direct contributions to the budget; and loans and advances against taxes and dividends. Outflows from the budget to or on behalf of the public enterprises typically include direct subsidies (for operating expenditures and investment); debt service (for both liquidated firms and firms remaining in the portfolio); and the costs of liquidation operations.

The net flows from the state enterprise sector to the budget have remained positive throughout the period 1988–95 (Table 10). On the revenue side, the direct contributions to the budget (paid in lieu of taxes by certain key enterprises exempt from the normal tax regime) were abolished in 1991 with the implementation of a law subjecting all public enterprises to normal taxation. By contrast, loans and advances against tax obligations gained in importance after 1990, as the state claimed resources from the sector to compensate for revenue shortfalls and the cessation of external assistance, particularly during the crisis years. On the expenditure side, subsidies have been substantially reduced since 1990. Operating subsidies are now essentially limited to the wage costs of government employees seconded to the enterprises. Although each enterprise is expected to reimburse the treasury for debt service payments made on its behalf, these often take the form of compensation operations against claims they hold on the government, either for loans and advances made or for unpaid services rendered.

The government has had consistently positive net flows from four sectors (public services, industry and mining, trade and transport, and financial institutions) over the period. These accounted for 98 percent of all revenues from the public enterprise sector during the years of crisis. Relative to agriculture and the hotel sector, the net flows have been consistently negative.

1 The data presented here are drawn from the recent review of public expenditures (World Bank, Togo: Revue des Dépenses Publiques, February 1997). They concern the 40 public enterprises that were still in the government portfolio in 1995, excluding the six small hotels in the interior of the country, which did not maintain regular accounts.
Table 8.

Togo: Status of Divestiture Operations, 1981-95

article image
Table 9.

Togo: Divestiture Operations Since 1996

article image
Source: Ministry of State Enterprises and the Free Trade Zone.

State holds or held 50 percent or less of the shares of the enterprise.

State holds or held a majority share of the enterprise.

State holds or held 100 percent of the shares of the enterprise.

Table 10.

Togo: Balance of Flows Between the State and the Public Enterprises, 1988-95 1/

(in millions of CFA francs)

article image
Sources: Ministry of Public Enterprises and the Free Trade Zone; and World Bank, Togo: Revue des Dépenses Publiques, February 1997.

Excluding enterprises privatized or liquidated before 1988, six of the ten hotels in public ownership, and the BIAO bank, taken over by the state in the aftermath of the Meridien banking crisis. Data on flows in 1996 are not available, as many enterprises have not yet submitted their definitive financial reports.

In addition to the planned disengagement from enterprises, the authorities also undertook a program to improve the performance of enterprises remaining in the state portfolio. This included reforms of the macroeconomic environment through price liberalization, demonopolization, and the liberalization of trade. Important reforms of the operating environment of the public enterprise sector were also envisaged:

  • the adoption of a new legal framework for the sector, providing for greater management autonomy;17

  • the reform of the financial relationship between the state and the public enterprises through the systematic on–lending of loans contracted by the government on behalf of the enterprises, with clearly defined repayment schedules; limiting operating subsidies to exceptional cases (public service, strategic or sociopolitical constraints); and submitting all public enterprises to the common tax code;18 and

  • strengthened supervision and control of the public enterprises, with enhanced monitoring of their operational and financial performance through a management information system (système d’information de gestion SIG).

In July 1990, in the context of the fourth structural adjustment loan of the World Bank (PASIV), the divestiture program was extended to cover an additional 18 enterprises. The revised program included the liquidation of the agricultural credit bank (CNCA), the sale of two hotels, diagnostic studies to determine the modalities of disengagement from 6 enterprises and the execution of these operations, and the definition of procedures for the sale of state shares in 9 mixed-ownership enterprises.

The Results of the Program

Divestitures

The lack of a clear divestiture strategy complicated the execution of the program. The choice of which firms were classified as “chronically deficitary”, and thus subject to liquidation, as opposed to “still financially viable” and slated for the sale of assets, was not made on the basis of objective commercial criteria. Similarly, inadequate attention was given to the implicit costs of the operations. The proceeds from the sale or lease of assets were often payable over a long period and just large enough to cover the severance payments of dismissed employees, leaving the government to carry the service of the guaranteed external debt. The government was in many cases unable to provide the resources needed to complete the necessary restructuring of the balance sheets or to settle the debts of the liquidated firms,19 hindering the completion of some of the divestitures. In other cases, realizing the sale of the assets proved more difficult than initially envisaged, and there were problems in recovering the claims of the enterprises on third parties, including other state enterprises, as well as other administrative difficulties.

Of the 30 firms included in the first phase of the divestiture program of 1983, by end–1993, 13 outright liquidations, 3 leasing arrangements, and the sale of 2 public enterprises had been concluded, and the sale of the state’s shares in a further 12 enterprises to new entities had been launched. However, for the reasons indicated above, several of these divestitures have still not been concluded (Table 8).

The additional program of 18 divestitures was only partially completed by end-1993. The CNCA was put into liquidation as planned, but the lack of resources for clearing the liabilities of the bank continued to prevent the completion of the operation. The hotels were put up for sale as planned, but neither operation could be concluded; the Miramar is presently still under liquidation, and the Tropicana is being dealt with in the context of the disengagement from the hotel sector (see below). Five or the planned six diagnostic studies were completed by end-1993. With the exception of the two financial institutions, all of these were put into liquidation, although only one operation was carried out before 1996. The changes to the legal framework necessary to permit the envisaged sale of the state’s shares in mixed-ownership public enterprises were adopted, but the actual sales did not take place until late 1996-97. However, three unanticipated operations did take place: the sale of part of Nouvelle Sotoma and of a factory of the previously liquidated SOTOTOLES, as well as the liquidation of the SRCC.

Improving the performance of the enterprises

Some progress was made in improving the economic environment under which the enterprises operated with the introduction of measures to liberalize the economic framework, including gradual price decontrol, demonopolization, and trade reform. However, to encourage the divestitures while preserving the employment objectives imposed on the firms, the government often granted new monopoly rights and other privileges to the firms operating under leasing arrangements, including tax exemptions, additional protection, and the government obligation to repurchase at book value any investment made by the lessor during the lease.

The SIG set up to collect financial and operating data from the enterprises began in 1990 to produce a series of quarterly and annual financial reports. These appeared regularly until end–1993, when the system broke down owing to the lack of equipment, the loss of key personnel, and the noncooperation of many enterprises in supplying the data.

A new legal status for public enterprises was created with the adoption of Law 90-26 on December 4, 1990, and by end-1993, the statutes of all public enterprises had been adjusted to conform to this framework.20 Moreover, the Budget Law for 1990 extended the common tax regime to those public enterprises that had previously been exempted from the enterprise tax (Impôt sur les Sociétés), notably OPAT, OTP, PAL, and OPTT.21

Finally, in 1990, the government undertook a restructuring of the Ministry of Industry and State Enterprises (MISE), with a view to reorganizing it internally, training officers, establishing procedures, and simplifying the monitoring of public enterprise performance—in this context, performance contracts were signed with the water company (RNET), covering 1991-93, and with the electricity company (CEET), for the years 1991-95, although neither was properly executed. However, the efficiency of these measures was undermined by frequent transfers of key personnel and the breakdown of the SIG.

D. The Revised Program of Divestiture from the Public Enterprise Sector, 1994-present

Content of the revised program

The stated objective of the original divestiture program was to reduce the government portfolio to only the public utilities and strategic enterprises. However, a series of nonstrategic and commercial or industrial firms were retained in state hands, as the government argued that the limited absorptive capacity of the local private sector prevented their privatization.

In view of the problems experienced in the implementation of the first divestiture program, particularly in the second phase since 1990, the program was substantially revised in 1994 with the support of the World Bank. The revised program envisaged

  • the completion of the program already under way, including the conclusion of the outstanding privatization and liquidation operations, the reactivation of the SIG, and the finalization of remaining administrative reforms;

  • the revision of the list of enterprises to be privatized, including the evaluation of the state minority share in mixed-ownership enterprises and the adoption of the necessary legal framework for the privatizations envisaged; and

  • the completion of the studies necessary for the restructuring of certain problematic enterprises that were to remain in the state portfolio.

The number of enterprises slated to remain in state hands was reduced from 26 to 15.22 In addition, diagnostic studies were to be undertaken aimed at preparing (i) the divestiture of the phosphate company, OTP (including the necessary restructuring of its debt), and the pharmaceutical import and distribution company, TOGOPHARMA; (ii) the separation of the postal services from the telecommunications company; (iii) a reduction of costs of the Autonomous Port of Lomé (PAL); (iv) the update of the performance contracts for the water company (RNET) and the electricity company (CEET); and (v) the reorganization of agricultural marketing between OPAT and SOTOCO. Furthermore, a short-term action plan was to be implemented to stem the losses of the remaining state-owned hotels and prepare for their sale.

Results of the revised program

After some slippages in 1996, substantial progress had been made by end-1997 in implementing the revised program (Table 9). Seven enterprises were put into liquidation in 1996–97, and nine firms were fully or partially privatized. The revenue from these sales amounted to over CFAF 39 billion over the two–year period, including CFAF 31.2 billion from OTP.23 Bids have been invited for the sale of 8 of the 11 state hotels. Negotiations have begun for the sale of three of these (Sarakawa, La Paix, and du Lac), while the initially unsuccessful tender for bids for four others was relaunched. The authorities are studying the strategy to be adopted for the main hotel, the 2 Février.

On the administrative side, the legal framework for privatization operations was rationalized in June 1994, with responsibility for all divestiture operations given to the reorganized Ministry of State Enterprises and the Free Trade Area (MSEZF), supported by a privatization commission with private sector participation. The postal and telecommunications company, OPTT, was split into two entities under separate management (the postal company (SPT) and Togo-TELECOM) in November 1996. A new regulatory framework for telecommunications was submitted for parliamentary approval in August 1997; a business plan for Togo-TELÈCOM has been prepared; and laws creating a regulatory agency for the post and for telecommunications are to be adopted before the end of the year. The preliminary reports of the diagnostic studies of three financial institutions (SNI, GTA and CET) have been completed. A new performance contract with the RNET was signed in late 1996; electricity and water tariffs were adjusted in late 1996 and early 1997, respectively; and the CEET was placed under interim private management in late 1996, pending its financial restructuring. The SIG has been reactivated, and the summary financial data for 1992-96 have been prepared—the regular preparation of quarterly and annual financial reports of the public enterprise sector is expected to resume in December 1997. Finally, financial audits have been launched for a series of public enterprises which had not submitted audited accounts for several years. Those of EDITOGO, CNSS, CET, and Hotel Ecole Le Bénin have already been completed, and action plans based on the recommendations of the auditors for the first two have been initiated—all but CNSS are on the new list of enterprises to be privatized.

The Second Phase of the Revised Program, 1997—

In September 1997, the authorities reached agreement with the World Bank on a Support Project for Public Enterprise Restructuring and Privatization (PAREP) comprising three main elements: the public enterprise sector; the postal services and telecommunications sector; and support for the restructuring of the financial sector. These aspects of the program will be reinforced by a targeted public information campaign to build support for the privatization process.

The public enterprise sector

Of the 20 enterprises remaining in the portfolio at end–1997 (excluding the 10 state-owned hotels), the authorities have decided to sell a further 15 firms, including 6 banks and financial institutions and the insurance company (GTA) (Table 9). The responsible ministries (Agriculture and Telecommunications) will be closely involved in the preparation of the complex operations regarding SOTOCO and Togo-TELECOM.

The administrative restructuring of the remaining public enterprises will continue through the preparation of business plans setting precise strategic objectives for each enterprise, the training of members of the boards of directors, the close monitoring of the financial performance of the public enterprises by the MSEZF, and the privatization of management of the RNET and the SPT.

Finally, to facilitate the privatization/restructuring process, the authorities intend to implement a social program for laid–off employees. This program includes full provision for legal severance payments; a new system of early retirement for employees younger than 50 years of age and with less than 25 years of seniority; minimum medical coverage for laid–off workers for a period of 12 months; and the establishment of a special social fund for the most vulnerable workers. The program will be supported by a new mechanism for promoting business start–ups and assisting in job searches (“reinsertion program”),24 including an appropriate credit facility.

The Postal and Telecommunications Sector

Within the new regulatory framework for telecommunications, the authorities have decided to liberalize the sector by granting private licenses for cellular services and encouraging the private provision of telephone services in outlying areas. Moreover, starting in 1998, the capital of Togo-TELECOM will be partially opened to a strategic investor, who will participate in the company’s management. Following diagnostic studies and an open international bid, the authorities also intend to delegate the management of the SPT to a specialized operator on the basis of a performance contract with results–oriented remuneration, as well as to undertake the necessary recapitalization of the company.

The financial sector

The government plans to withdraw from six financial institutions and concentrate on ensuring compliance with regulatory requirements and promoting the use of new financial instruments. Preliminary studies have been prepared for the restructuring of three troubled institutions (SNI, CET, and GTA). In addition to the divestitures, this aspect of the program includes a project to promote a microfinance system in Togo.

E. Conclusions and Outlook

The implementation of the public enterprise restructuring and divestiture program over the last ten years has been inconsistent, and subject to numerous delays and slippages. The success of the first phase of the program (from 1983 to 1990) was constrained by several factors.

  • The lack of a clear divestiture strategy and the absence of appropriate financial information on the enterprises and clear business plans made the decision on which firms were viable and the choice of enterprises for liquidation or sale/leasing somewhat arbitrary. Divestitures were in many cases not based on the results of open bidding, and the choice among competing bids was often based on promises to maintain employment in the firms, rather than on commercial considerations. Moreover, the political commitment to the declared principles of the program was not complete, with the result that the authorities maintained control over a number of nonstrategic enterprises, and were reluctant to proceed with the divestiture of the more important enterprises.

  • The absence of a formal definition of the objectives in terms of eliminating the debt of the enterprises in the program and restructuring their balance sheets meant that the proceeds of the sale or lease or assets were often insufficient to cover the external debt service of the divested firms, while insufficient attention was paid to ensuring the availability of the resources necessary for an orderly completion of liquidation operations.

  • The required reforms of the macroeconomic environment were initiated, but not implemented in a sufficiently bold and comprehensive manner. For example, despite a continuing process of price liberalization, public utilities were not allowed to set their tariffs according to commercial principles; monopolies persisted in key areas, such as agricultural marketing; and many enterprises continued to enjoy specific protection and tax advantages, and new privileges were in some cases granted to the private operators of divested firms.

  • Attempts to reinforce and rationalize the state’s monitoring and supervision of the sector was only partially successful. The reorganization of the ministry of state enterprises was not fully effective owing to the loss of personnel and the breakdown of the management information system; and the introduction and enforcement of management accountability was undermined by the continued intervention of the government in the choice of senior personnel and in day–to–day management decisions.

Although a renewed effort was made to address these shortcomings after 1990, the divestiture program encountered further setbacks with the outbreak of the crisis in 1991. The breakdown of the tax system made the state was more dependent than before on discretionary transfers in the form of loans and advances from the key public enterprises, notwithstanding the discontinuance of the system of direct contributions in 1991. Under these circumstances, the financial situation of the public enterprise sector deteriorated further, and a determined continuation of the privatization program was not possible.

The 1994 revision of the program provided a more strategic approach to the divestiture effort. Macroeconomic liberalization and regulatory reforms undertaken in the context of the devaluation of the CFA franc in 1994 strengthened the financial situation of many of the remaining enterprises and, together with the more thorough preparation of the major operations (for example, in the phosphate, pharmaceutical, and telecommunications sectors), created a more propitious framework for the divestitures. Nonetheless, the program continued to be plagued by delays and slippages.

Since the beginning of 1997, however, there has been an evident effort on the part of the authorities to reestablish the momentum of the program. With the completion of the recently the new phase of the privatization program recently negotiated with the World Bank, the government will have withdrawn almost entirely from direct involvement in commercial or productive activity in the economy. It will retain controlling ownership only in the CEET and the RNET, the PAL, the Social Security Fund (CNSS), the SPT and the LNBTP, and it will delegate management autonomy in the RNET and the SPT—and eventually the CEET—to private partners.

However, several problems remain to be resolved, in order to satisfactorily conclude the uncompleted liquidations and to ensure the acceptance of the new strategic privatizations.

  • Completing the outstanding liquidations and meeting the costs of new operations.

The completion of many liquidation operations has been blocked by the lack of government resources to repay creditors, including arrears on wages and social contributions of some of the enterprises. Completion of the other liquidations requires the signature of contracts finalizing the transfer of shares to a new entity, or government assumption of responsibility for matters pending before the tribunals. Substantial costs may also accrue to the budget for restructuring the SPT, including the necessary recapitalization and extension of the infrastructure, particularly in rural areas, and for the restructuring and divestiture from financial institutions.25 The success of the program depends critically on the ability to meet these costs—the failure to properly take account of the costs of various operations was one of the reasons for the poor implementation of the earlier stages of the divestiture program.

Resources Required from the Treasury to Complete Liquidation Operations26

article image
Source: World Bank.