Côte d'Ivoire
Selected Issues and Statistical Appendix

Cote d'lvoire adopted an IMF-supported program in early 1994 following the devaluation of the CFA franc. Under this program, progress was made in reducing financial imbalances, controlling inflation, liberalizing the economy, and establishing a sound basis for sustainable economic growth necessary to reduce poverty. The following statistical data are also presented: selected national accounts indicators, GDP by origin, deflators of sectoral output, price structure of oil and gas products, production and exports of lumbar, export prices and costs of cocoa and coffee, and producer prices in agriculture.

Abstract

Cote d'lvoire adopted an IMF-supported program in early 1994 following the devaluation of the CFA franc. Under this program, progress was made in reducing financial imbalances, controlling inflation, liberalizing the economy, and establishing a sound basis for sustainable economic growth necessary to reduce poverty. The following statistical data are also presented: selected national accounts indicators, GDP by origin, deflators of sectoral output, price structure of oil and gas products, production and exports of lumbar, export prices and costs of cocoa and coffee, and producer prices in agriculture.

I. Recent Economic Developments1

A. Introduction

1. Côte d’Ivoire adopted a Fund-supported program in early 1994 following the devaluation of the CFA franc. Under this program, progress was made in reducing financial imbalances, controlling inflation, liberalizing the economy, and establishing a sound basis for sustainable economic growth necessary to reduce poverty.2 Building on the progress made during 1994-97, Côte d’Ivoire adopted in early 1998 a second three-year Fund-supported program aimed at completing the unfinished reform agenda, achieving durable economic growth and medium-term financial viability, and reducing poverty. While progress was initially made under both these programs, there were serious difficulties in policy implementation that eventually affected the economic performance.

2. Over the 1994-98 period, real GDP growth averaged 5½ percent, providing the first sustained improvement in per capita GDP since the late 1970s (Text Table 1 and Statistical Appendix Table 1). During this period, the external current account deficit (including grants)3 was lowered from 11 percent of GDP in 1993 to 4 percent in 1998; the external debt burden was reduced; and, after the initial pass-through of higher import prices following the devaluation, inflation settled at about 2 percent on an annual basis. Côte d’Ivoire’s economic situation was further boosted by resurgent concessional aid flows between 1994 and 1998. Significant progress was made in consolidating public finances during this period, with the overall fiscal deficit declining from about 12 percent of GDP in 1993 to 2½ percent in 1998. Moreover, the Ivoirien authorities made notable progress on the structural front, moving ahead on reforms in the agriculture and financial sectors, and on the privatization program.

3. Since late 1998, however, some of this momentum has been lost. Weaknesses have reemerged on the fiscal front; progress on structural measures has slowed; and a number of governance issues have surfaced. By end-1999, substantial domestic and external arrears had accumulated. In addition, little progress has been made on the authorities’ ambitious social sector agenda. The economy has also been adversely affected by a sharp downturn in the terms of trade, with cocoa prices now 40 percent below their level at end-1998, as well as by a significant slowdown in disbursements of external assistance. In this context, economic growth has slowed considerably, falling in 1999 below 3 percent for the first time since 1994, and investment has slipped with the private sector’s adoption of a more cautious stance in the current uncertain political environment following the December 1999 coup d’état.

Table 1.

Côte d’Ivoire: Selected Economic and Financial Indicators, 1991-99

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Sources: Ivoirien authorities; and staff estimates.

B. Growth, Investment, and Savings4

Recent developments in output

4. During the five years preceding the devaluation (1989-93), the overall deterioration in competitiveness contributed to a stagnation in real GDP, with per capita output falling by about 3½ percent annually. This period was marked by sharp declines in construction, manufacturing, and services, barely offset by growth in the primary sector that mainly reflected a sustained rise in the production of food crops.

5. Following the devaluation in 1994, real GDP growth resumed, rising above 7 percent in 1995 (Figure 1). The resumption of growth was initially concentrated in certain traded goods, offsetting the devaluation-induced contraction in the nontraded goods sectors and in the sectors sheltered from competition, which initially both suffered from the reduction in real disposable income. Subsequently, activity in almost all sectors of the economy picked up, with strength in traded goods continuing and output in nontraded goods registering strong gains during 1995-97 in line with resurgent domestic demand. The pickup in demand was fueled in part by foreign assistance, which doubled in U.S. dollar terms between 1993 and 1995.

Figure 1.
Figure 1.

Côte d’Ivoire: Growth of Real GDP, 1993-99

(In percent)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: Ivoirien authorities; and staff estimates.

6. In 1998, private sector activity remained buoyant, and investment and imports increased noticeably during the year. Manufacturing activity, in particular, registered a strong increase. However, total output growth was weakened somewhat by poor climatic conditions that lowered production of both food and export crops.

7. GDP growth continued to decelerate in 1999, falling below 3 percent despite a rainfall-induced boost in agriculture output, as the drop in commodity prices beginning in mid-1998 and rising political tension began to have an impact on real income and private sector activity. The 40 percent drop in world cocoa prices, combined with declines in other key export prices, had a negative impact on rural incomes and affected the profitability of enterprises active in the agriculture sector. The drop in commodity prices also had a depressing effect on the public finance position, both through the direct impact of a smaller cocoa stabilization surplus and the indirect effect of reduced economic activity on tax receipts. 1999 was also marked by a virtual halt in disbursements of external budgetary support, owing to the lack of an operative program supported by the Fund and governance issues involving funds from the European Union. Initial indications in 2000 are that economic activity will remain subdued: the full impact on incomes of the drop in cocoa prices is expected to be felt this year.

8. Output in the primary sector fluctuated widely over the 1994-99 period, largely owing to variations in climatic conditions, with growth averaging 4 percent a year, slightly higher than population growth (3.8 percent). The production of food crops, which rely almost exclusively on rain-fed agriculture, increased only slightly over the entire period:5 production of root crops (primarily yams and cassava), which in volume terms account for about half of all food crops, remained stagnant, while output of cereals registered average annual increases of about 5 percent (Statistical Appendix Table 9). The cultivation of maize, which responds well to the climate and soil conditions of central Côte d’Ivoire, has picked up considerably in recent years.

9. Regarding export crops, production of cocoa, which had already been Côte d’Ivoire’s most important export and agriculture crop, jumped considerably in 1995 (see Section II), rising from 0.9 million tons to a record 1.2 million tons; since then, output has remained strong, and the level of 1.2 million tons was matched in the 1998/99 crop year.6 This expansion of output was due in part to improved tree varieties planted in the late 1980s and early 1990s, which came into production by 1995 (cocoa trees take three-five years after planting to bear beans suitable for processing). A second factor was the expansion in the early 1990s of the total acreage planted with cocoa.7 Despite the improvement in tree varieties just noted, yields of just over half a ton per hectare in Côte d’Ivoire remain low compared with other cocoa-producing countries, and quality has slipped below market benchmarks. The low yields are due in part to the relatively low levels of fertilizer use in Côte d’Ivoire.

10. Production of coffee, Côte d’Ivoire’s second-largest export, has experienced wide swings. After falling to 126,000 tons in 1994, in large part because of adverse weather conditions, coffee production rebounded steadily to over 300,000 tons in 1998, before collapsing again in 1999 owing to poor rains. Output of most other cash crops, notably palm oil, rubber, and fruits, increased only slightly over the 1994-99 period in the face of weak world prices (Statistical Appendix Table 10). Cotton production, which is centered in the northern part of the country, has, however, been more successful, increasing by almost 9 percent annually on average. In the forestry sector, the production of timber declined by about 14 percent between 1994 and 1998 (Statistical Appendix Table 12). In light of the decline in forest cover in Côte d’Ivoire, the authorities have tightened considerably their control over timber harvesting. Output in the petroleum sector, which is included in the primary sector for national accounts purposes, picked up considerably in 1995 from a low base and doubled in 1996 (to about 25,000 barrels per day, including the petroleum equivalent of natural gas). Growth in that sector has been slow since that time; nonetheless, value added still represents only ½ of 1 percent of GDP. Exploration for drilling sites, however, remains active, and new oil and gas fields are expected to come onstream in the next few years.

11. In the secondary sector, manufacturing and industrial activity initially remained subdued following the devaluation, with output rising only about 2 percent annually in 1994 and 1995. However, 1996-98 saw a vigorous expansion in manufacturing activity, in line with the rise in domestic demand and investment. At end-1998, the industrial production index stood at 57 percent above its level at end-1993 (Statistical Appendix Table 15). This rise was initially based on greater utilization of existing capacity, but subsequently was due to an extension of plant and equipment. The rate of expansion slowed in 1999, in line with the softening in domestic demand, as activity in a number of industries contracted during the year. In specific subsectors, textile and clothing production almost doubled over the 1994-99 period as Ivoirien firms took advantage of their renewed competitiveness. In the energy sector, production also doubled, as several new generating plants came onstream (Statistical Appendix Table 16). The Azito project, which became operational in 1998, utilizes Côte d’Ivoire’s offshore natural gas production to generate electricity. Construction and the manufacturing of construction materials soared over 1994-99, reflecting increased investment in plants by private enterprises, expanded public works by the government, and reflows of household savings for use in home construction. In the area of agro-industry, the cocoa-processing industry is undergoing a significant expansion, with capacity rising from 187,000 tons of beans to 285,000 tons between 1997 and 2000. Although capacity utilization in this industry is at a rate of about 70 percent, this ratio is expected to rise with the recent prohibition of the export of low-grade beans, which must be absorbed by local processors. In contrast, agro-industries such as grain milling and bottling, which are oriented mainly toward the domestic market, have increased by only 2-3 percent annually on average.

12. The tertiary sector encountered steady declines in the early 1990s, in line with the slowdown in economic activity and contraction of public expenditure. The rebound in 1994 in tertiary sector output was led by a strong increase in government services, with commercial activity picking up more slowly; other services, which include an estimate of services in the informal sector, remained depressed owing to the initial drop in real income following the devaluation. Activity in the tertiary sector expanded by some 6 percent annually over 1995-97, in line with the overall expansion in economic activity. Transport and commerce picked up considerably, as reflected in the huge increase in activity at the Port of Abidjan, which saw its traffic volume rise by 21 percent during those years, making it the third-largest port in sub-Saharan Africa in volume terms. However, by 1998, external trade had begun to flatten, with slower growth in transport and commerce paired with weak growth in other services, presaging the overall softening of economic activity. In 1999, this trend continued, with output growth in the services sector matching the tepid growth of the economy as a whole. In addition to the areas just mentioned, demand for financial and insurance services has been stagnant, and government services have increased only slightly. This situation is expected to persist in 2000.

Investment, savings, and consumption

13. During 1989-93, real consumption declined by almost 1 percent a year, with per capita household consumption falling by almost 4 percent annually. At the same time, investment fell sharply, by almost 25 percent in real terms. Enterprises became increasingly reluctant to invest in light of the poor economic situation and in growing anticipation of the devaluation of the CFA franc. In addition, the weak fiscal position led to a compression of public investment. Although net dissavings in the public sector declined over the 1989-93 period, it was not sufficient to offset the sharp fall in private sector savings.

14. Following the 1994 devaluation, domestic demand recovered, led by fixed investment; at the same time, the external sector ceased to be the drag on the economy that it had been in 1990-93. As a share of nominal GDP, domestic investment rose from about 8 percent in 1993 to 16 percent in 1998 (Figure 2 and Statistical Appendix Table 4). While a stronger fiscal position and a resumption of aid flows contributed to an acceleration in the public investment program, the boost in investment was largely driven by a surge in private investment, which rose by almost 6 percent of GDP between 1993 and 1998. Key sectors benefiting from increased private investment included agro-processing (in particular, cocoa processing), oil and gas drilling, and power generation and transmission. More recently, there have been substantial investments in the telecommunications sector, notably with the installment of a sizable cellular network. Investment in transportation infrastructure picked up as well over the period, although primarily with the aim of rehabilitating existing roads, rail lines, and airports. Weakening private sector confidence led to a slowdown in firm-level investment. Public investment also fell owing to the ongoing fiscal difficulties, a situation that was aggravated as the absence of domestic counterpart funds blocked disbursements of donor-supported projects.8

Figure 2.
Figure 2.

Investment and Savings, 1993-99

(Share of GDP)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: Ivoirien authorities; and staff estimates.

15. Domestic savings rebounded dramatically following the devaluation. The ratio of gross domestic savings to GDP rose by 13 percentage points to 22 percent of GDP in 1994 as consumption fell both in real terms and as a share of GDP. Total domestic savings increased to almost 25 percent of GDP by 1998, primarily because of the steady improvement in public finances. Over this period, the rebound in private consumption in 1995-97 led to a dip in private savings, although in 1998 the share of private savings in GDP rose by about 2 percent to match the boost in investment that year. These trends, however, did not extend to 1999. On the public finance side, a continued increase in public consumption, coupled with a sharp drop in revenue, led public savings to fall as a share of GDP by 2 percent. At the same time, private sector savings remained roughly constant, and, as a result, total domestic savings declined by almost 2 percent of GDP.

Inflation and labor market

16. As measured by the consumer price index (CPI), inflation, which surged to 32.2 percent on a year-on-year basis in 1994 in the wake of the devaluation, on account of the full pass-through of the price adjustments after the devaluation, dropped to 3.5 percent by end-1996 (Statistical Appendix Tables 6 and 7). Since that point, inflation in Côte d’Ivoire has largely reflected the low levels of world inflation, with changes in end-of-period CPI remaining at about 2 percent in 1998 and 1999.9 Restrained wage policies pursued by the authorities have been important in containing increases in unit labor costs and prices of nontradables. At the same time, the prudent stance taken by the monetary authorities has ensured that domestic demand pressures have been limited.

17. Information on the Ivoirien labor market remains sparse. Although the authorities regularly provide data on the civil service, only sporadic data are available on formal private sector employment, and very little concrete information on the informal sector has been aggregated. In this context, information on unemployment is highly uncertain. Bearing in mind these caveats, data from the 1995 household survey cite a labor force of 6.6 million people, or 46 percent of the estimated population (14.2 million) in 1995. Of the total labor force, employment in the formal sector amounted to 464,000, including public sector employment of 241,000—118,700 in the civil service, about 15,000 in the military (including gendarmes), and the balance in public enterprises and other public entities—and 223,000 workers in the private formal sector (3 percent of the total labor force). The unemployment rate was estimated at 4 percent, but this is a figure which should be taken with extreme caution.

C. Fiscal Developments and Policy

18. Côte d’Ivoire has made significant progress in the context of Fund-supported programs in moving to a more sustainable fiscal path. However, because the country’s debt ratio is relatively high and its fiscal position remains fragile, the commitment to fiscal discipline requires renewed strengthening. This section presents recent developments in fiscal policy in Côte d’Ivoire and highlights a set of key issues in this area.

Table 2.

Côte d’Ivoire: Key Fiscal Indicators, 1993-99

(In percent of GDP, unless otherwise indicated)

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Source: Statistical Appendix Tables 1 and 19.

Overview of fiscal policy

19. Fiscal policy did not adjust to the end of the cocoa and coffee price boom in the late 1970s and was put on a clearly unsustainable track. Overall fiscal deficits (on a payment order basis and including grants) averaged about 10 percent of GDP from 1978 to 1993, excluding three years from 1984 to 1986 when commodity prices recovered temporarily. Between 1989 and 1993, the overall fiscal deficit, although declining, stood between 16½ percent and 11 percent of GDP (Text Table 2 and Figure 3). In this context, public debt accumulated rapidly, rising from less than 50 percent of GDP in 1978 to a high point of 220 percent in 1994 (Figure 4).10

Figure 3.
Figure 3.

Côte d’Ivoire: Central Government Fiscal Balance, 1975-99

(In percent of GDP)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: Ivoirien authorities; and staff estimates.
Figure 4.
Figure 4.

Côte d’Ivoire: Total Public External and Domestic Debt Outstanding, 1970-99

(In percent of GDP)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: Ivoirien authorities; and staff estimates.

20. Following the 1994 devaluation, the fiscal situation improved markedly, fueled by strong economic growth and adjustment measures. The overall fiscal deficit was reduced from 11.9 percent of GDP in 1993 to 2.3 percent in 1996 (Statistical Appendix Table 19). Similarly, the primary balance moved from a deficit of 3.2 percent of GDP in 1993 to a surplus of 3.6 percent in 1996. At the same time, the public debt ratio fell from 220 percent of GDP in 1994 to 179 percent of GDP in 1996 (over the same period, the external debt ratio fell from 184 percent to 155 percent of GDP and the domestic debt ratio dropped from 36 percent to 24 percent of GDP).

21. However, despite the progress made, the fiscal situation remained fragile. After 1996, the improvement stalled and difficulties in fiscal management reemerged, marked by poor revenue collection, weak control over expenditure, and persistent cash-flow tensions. By 1997, arrears11 resulting mainly from unrecorded off-budget spending and DENOs (dépenses engagées non ordonnancées—spending committed for which payment orders have not been issued)12 had started accumulating, hence blurring the fiscal position. In 1998 and 1999, the fiscal situation worsened. The primary surplus declined to 1.9 percent of GDP in 1998 and 1.4 percent of GDP in 1999, and the overall deficit started rising again, to 2.4 percent of GDP in 1998 and 2.9 percent in 1999. Moreover, DENOs and arrears amounted to 3.8 percent of GDP at end-199813 and more than 7 percent of GDP at end-1999 (Box 1). Of the total at end-1999, DENOs represented 1.9 percent, expenditure arrears 4.1 percent, domestic debt-service arrears 0.6 percent, and external debt-service arrears 0.5 percent.

Fiscal Management—DENOs and Arrears

In Côte d’lvoire’s budget execution system, current and investment expenditures are subject to a three-stage process: (a) the commitment stage when the line ministry contracts with a supplier; (b) the payment order stage (ordonnancement) when the items have been delivered, the invoice is received and the order to pay is issued; and (c) the cash payment itself.1 Controls are made in principle at every stage, either by the financial controller2 at stage (a) and (b), or by the treasury at stage (c). However, DENOs (spending committed for which payment orders have not been issued) may appear if commitments are not fully recorded and bills are not processed at the payment order stage. Arrears may also build up if processed payment orders are not paid, either owing to administrative delays, or to cash tensions, or in case of off-budget spending.

Côte d’lvoire has a mixed record in public expenditure management, and the buildup of DENOs and arrears has been a recurrent feature, especially since 1997. In 1999, the stock of DENOs and arrears increased tremendously, not only blurring Côte d’lvoire’s fiscal position but also undermining the credibility of government commitments. The figure below provides an illustration of this recent evolution.

uA01fig01

DENOs and Arrears 1997-1999

(End year; in percent of GDP)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Multiple factors contribute to the buildup of DENOs and arrears. While poorly integrated expenditure systems and weak control over public expenditure management processes are important, other underlying causes include: (a) poor prioritization of expenditures; (b) absence of sanctions in case of mismanagement; (c) unwillingness of spending units to adhere to spending limits; (d) lack of consistency between fiscal management policy and cashflow availability; and (e) insufficient commitment from the authorities to ensure the implementation of administrative measures underlying revenue forecasts and to avoid off-budget spending.

While all these factors have contributed significantly to the accumulation of arrears and DENOs in Côte d’lvoire, the recent accumulation of DENOs occurred also in the context of poor revenue performance in the absence of measures required to strengthen the efficiency of tax collection, reduce exemptions, and combat fraud. The arrears revealed by the 1999 audit resulted mostly from off-budget spending, caused by a lack of commitment from governmental authorities to ensure the enforcement of basic public accounting rules.

1/ Large expenditure categories such as wages, interest payments, and electricity, water and telecommunications bills, partially or totally escape this scheme and undergo automatic transfer processes without these steps.2/ Until 1999, the payment order stage was centralized at the Ministry of Finance, with a central unit (SACO) recording payment orders. The new computerized decentralized system will rely more on line ministries and financial controllers.

Revenue collection, tax policy, and WAEMU integration

22. The steady increase in revenue collection was a major cause of the improvement in the fiscal situation from 1994 to 1996 (Statistical Appendix Table 20). Tax revenue increased by an average annual rate of 24 percent, reflecting the impact of the devaluation, strong GDP growth, and the effects of tax policy measures. The ratio of total revenue (excluding grants) to GDP increased steadily, rising from 17.6 percent in 1993 to 22.2 percent in 1996. In 1997, the ratio fell to 21.5 percent although it remained high in relation to comparator countries (in 1995, the ratio for Côte d’lvoire was 22.1 percent, versus an average of 14.1 percent in African CFA franc zone countries and 18.1 percent in Structural Adjustment Facility (SAF)/Enhanced Structural Adjustment Facility (ESAF) countries). 14 While all components of tax revenue showed a strong progression during the period, the reintroduction of an export tax on cocoa and coffee in 1994,15 the creation of a large-taxpayer unit in 1996, and other actions to curb fraud and tax evasion played a significant role in the favorable outturn.

23. The slowdown in tax revenue growth at the end of 1997 became more pronounced in 1998 (2.6 percent growth against a 7.3 percent rise in nominal GDP). This trend continued in 1999 as tax revenue largely stabilized (0.6 percent increase) and the revenue-to-GDP ratio fell to 18.4 percent, close to its 1993 level. Although the economic slowdown accounted for part of Côte d’lvoire’s poor revenue performance in 1998 and 1999, other factors played a prominent role. In particular, continued fiscal fraud, large exemptions, weak enforcement of tax collection, the offsetting of tax duties against government arrears as cash tensions developed, and delays in adopting the tax measures needed to compensate for the implementation of the West African Economic and Monetary Union (WAEMU) common external tariff (CET—see Box 2) were all factors that contributed to the poor tax collection record in 1998-99.

24. The surge in domestic and import tax exemptions, a growing cause of poor revenue collection, illustrates the deterioration of the monitoring capacity on the revenue side during the past three years. Total exemptions rose from CFAF 17.8 billion (0.3 percent of GDP) in 1996 to CFAF 80.8 billion (1.2 percent of GDP) in 1999. The loss of revenue under specific domestic value-added tax (VAT) exemption regimes (mainly exemptions under the investment, petroleum, and mining codes, and special exemptions accorded by ministries, as well as those for embassies) increased from CFAF 5.5 billion in 1996 to CFAF 8.8 billion in 199916 (i.e., a rise of 60 percent, while the number of exemption requests rose by only 5 percent over the period). Regarding VAT and tariff exemptions on imports, the loss of revenue is larger, with the amount rising to CFAF 72 billion in 1999 from CFAF 12 billion in 1996.17 The VAT accounts for half the loss. Exemptions granted under the investment code and under specific agreements for 12 major public works account for more than 70 percent of the total revenue loss.

Côte d’Ivoire: WAEMU Harmonization on Customs and the VAT

West African Economic and Monetary Union (WAEMU) integration has induced significant changes in Côte d’lvoire’s tax system centered around the adoption of the common external tariff (CET) by January 1, 2000 and the harmonization of value-added tax (VAT) and excise taxes by January 1, 2002.1 The main requirements may be summarized as follows:

For the CET,

  • classifying items along four categories with tariff rates of 0 percent, 5 percent, 10 percent, and 20 percent;

  • dismantling minimum tariff collections, additional taxes, and reference values;

  • adopting a minimum 5 percent tariff rate on previously exempted goods and services under the investment, mining and petroleum codes, and on public works; and

  • possibly adopting transitional measures to accommodate the drop in tariff protection on certain items.

For the VAT,2

  • adopting a single VAT rate ranging from 15 percent to 20 percent;3

  • adopting a common list of exempted goods and services—the list is limited to basic goods and services (the first tranche of water and electricity, basic food, pharmaceuticals and medical services), bank and insurance operations, and some international trade-related operations;

  • dismantling VAT exemptions for the investment, mining, and petroleum codes, and public works; and

  • broadening the taxable base to a common definition including custom duties and excise taxes.

Harmonization will simplify the current system of taxes and tariffs, and increase its overall efficiency. In the short run, it also raises challenges, owing to the revenue losses resulting from the introduction of the CET. The loss has been estimated4 at 0.8 percent of GDP, including a partial impact in 1999 and the full impact in 2000.

Côte d’lvoire complied with the CET in advance of the requirements. Transitional measures were adopted in March 1998 (reduction of the highest duty rate from 35 percent to 25 percent) and in July 1999 (reclassification of goods according to the four WAEMU categories). In January 2000, the CET, with a maximum rate of 20 percent, was in place. Regarding VAT, measures were adopted, together with the revised 2000 budget, in April 2000. Regarding the adoption of a single rate, Côte d’lvoire should be in a position to fully comply with WAEMU requirements by January 1, 2001, one year before the official deadline.

In spite of the broad compliance with WAEMU requirements, Côte d’lvoire’s tax and tariff system remains prone to too many exemptions related to imports (mainly petroleum, mining, and investment codes, specific public works, and ad hoc agreements). The overall cost may have reached some CFAF 72 billion in 1999 (1 percent of GDP). The WAEMU directives prohibits the use of new ad hoc exemptions. However, even if the Ivoirien authorities tend to comply with this rule for the future, the cost of past exemptions will remain high in the next few years, as investment projects benefiting from exemptions continue and related imports rise.

1/ For customs, harmonization principles are defined by regulation 02/97/CM/UEMOA of November 28,1997. For VAT and excise taxes, harmonization principles are defined respectively by directives 02/98/CM/UEMOA and 03/98/CM/UEMOA, adopted on December 22, 1998.2/ As an exception, harmonization in the transportation sector has been delayed until 2004.3/ The single-rate range allows flexibility for the WAEMU countries in implementing the harmonization. In the case of Cote d’lvoire, the single rate should be fixed between 18 percent and 20 percent to ensure no revenue loss.4/ January 1999 FAD technical assistance mission.

Expenditure policy and management

25. Over the period 1994-99, total spending increased from CFAF 1,152 billion to CFAF 1,514 billion; as a percent of GDP, it fell from 27 percent to 22 percent. Primary expenditure decreased from 21.3 percent of GDP in 1993 to 17.6 percent of GDP in 1999, remaining under 20 percent of GDP from 1994 onward. This apparent restraint does not, however, reflect the increase in DENOs and arrears in the last three years, as noted above. By end-1999, the stock of DENOS stood at 1.9 percent of GDP and arrears at 5.2 percent.

26. The authorities were successful in containing the wage bill, which increased by 5.3 percent on average annually over the period, enabling the share of wages in primary expenditure to decrease from 40 percent in 1994 to 35 percent in 1999;18 the decrease was due to modest nominal wage increases and a reduction in staffing. The military wage increase of 30 percent in 2000 will, however, partially reverse this trend and raise the wage bill to over 37 percent of primary expenditure.

27. Prior to 1999, expenditure priorities focused on restoring public investment,19 with investment outlays increasing from 4.6 percent of GDP in 1994 to 6.9 percent in 1998. In 1999, however, owing to cash tensions, difficulties resulting in part from the adjustment to a new public expenditure management framework implemented in the course of the year (Box 3), and, more generally, delays in the completion of projects, execution of the public investment program suffered, and the investment-to-GDP ratio fell back to 4.7 percent of GDP.

Côte d’Ivoire: Introduction of a Computerized Expenditure Management System (SIGFIP) 1

The need to generate higher-quality fiscal data, address the recurrent shortcomings in public expenditure, and accommodate the WAEMU directives on public expenditure management has led Côte d’lvoire to undertake reforms of the public expenditure management framework.

The Ivoirien authorities, backed by Fund technical assistance, designed a new public expenditure management framework, which was implemented in early 1999. It included (i) budget classification reform; (ii) unification of current and investment expenditures under the same preparation and execution processes—in line with WAEMU directives on public finance; (iii) a general attempt at streamlining budget processes; and (iv) a new computerized system to monitor public expenditures (SIGFIP).

SIGFIP is based on a computerized network connecting line ministries, financial comptrollers, and the Ministry of Finance. The commitment and the payment order stages for most expenditures (excluding wages and interest payments) are decentralized in line ministries. Commitments and payment orders are entered in the system by ordonnateurs 2 and validated by financial comptrollers. The Ministry of Finance has direct access to SIGFIP data and can closely monitor the budget execution.

Although the system is an efficient tool to produce more reliable and timely fiscal data, its introduction in the course of 1999, together with the other aspects of the public expenditure management reform produced delays in the implementation of investment projects. While poor training of staff and cashflow tensions largely accounted for these delays, some rigidities within the system also contributed to inefficiencies. A review of SIGFIP procedures recommended that some flexibility should be allowed to remedy initial shortcomings. Its main recommendations point to (i) making project managers ordonnateurs for their projects; (ii) creating petty cash procedures to deal with current expenditures on a daily basis; and (iii) using the decentralized network of public accountants and financial comptrollers to limit administrative transmission delays. To be successful and safeguard the reliability of fiscal data, this increased flexibility will need to be paired with stronger enforcement of the guidelines on reporting and management duties to ensure these are respected by project managers and decentralized public accountants.

1/ Système Intégré de Gestion des Finances Publiques.2/ The issuers of the payment order.

28. Priority spending in the health and education sectors increased during the 1993-98 period (Statistical Appendix Tables 22 and 23).20 Excluding the wage bill, this spending increased by roughly 20 percent annually. Including the wage bill, the increase was less marked, and, after an initial decrease in the wake of the devaluation, the share in GDP of spending on health and education was globally maintained between 1995 and 1998 at 5.8 percent. During this period, some 700 classrooms and 50 clinics were constructed each year by the state. In 1999, however, spending on health and education fell to 5.4 percent of GDP, and the physical execution of classrooms and clinic construction lagged far behind schedule. Indeed, the original 1999 program included the construction of 1,020 classrooms, of which none were effectively completed by the end of the year. Only 198 classrooms were finished in 1999, all of them from programs initiated in previous years. Regarding clinics, although the execution of the 1999 construction program was largely achieved, the number of clinics that became truly operational remained far lower due to equipment and staff shortages.21 Although social indicators have improved in recent years, they remain low in comparison with other countries with similar GDP per capita. The gross primary education enrollment rate is still under 75 percent. Health conditions remain precarious; vaccination rates are low (only 50 percent of children between 1 and 2 years old) received vaccinations; and there is a growing impact of HIV/AIDS.

D. Monetary and Credit Developments 22

29. The 1994 devaluation was followed by a strong recovery of money demand, which continued through 1997 (Figure 5 and Statistical Appendix Table 29). During this period, credit to the private sector surged with the improved business climate and the progressive easing of interest rates. At the same time, net credit to the government declined, reflecting a strengthened public finance position. In this context, and consistent with the positive differential maintained between the central bank’s rediscount rate and the French money market rate, Côte d’lvoire’s contribution to the net foreign assets of the Central Bank of West African States (BCEAO) improved considerably until 1997, erasing the substantial pre-1994 net deficit position (Statistical Appendix Table 30). However, in 1998 net foreign assets declined, and turned negative again in 1999.

Figure 5.
Figure 5.

Côte d’Ivoire: Composition of M2, 1993-99

(In billions of CFA francs)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Source: BCEAO.

30. In 1998, the money supply increased broadly in line with nominal GDP, although credit demand in the private sector remained weak, largely owing to a slow pickup in crop credit near the end of the year (Statistical Appendix Table 31). The demand for crop credit was affected by climatic conditions that delayed the beginning of the harvest in the cocoa and coffee sectors. In addition, banks proved reluctant to lend to certain exporters in light of nonperforming crop credits from previous years. In contrast to the 1994-97 period, emerging fiscal weaknesses resulted in a sharp pickup in net credit to the government in 1998 (Statistical Appendix Table 32), while net foreign assets declined slightly during the year. 1998 was also marked by a strong increase in the share of currency in circulation in broad money, in large part because the rise in producer prices for cocoa and coffee led to greater cash holdings by the rural population. There was some shift in bank lending from short-term (including crop-related) credit to long-term credit as some investment picked up. However, bank lending in Côte d’lvoire remained oriented predominantly toward short-term credits, given the higher cost of long-term resources (sight deposits in Côte d’lvoire are generally not remunerated), as well as the difficulties with recovering nonperforming loans.

31. Broad money rose by 1 percent in 1999 as a 7 percent increase in net credit to the government (1.5 percent of GDP) was offset by a sharp drop in credit to the economy (Figure 6). The deteriorating fiscal position led the authorities to draw close to the maximum allowed advances from the central bank (avances statutaires —capped at CFAF 233 billion);23 in addition, there was a substantial use of public deposits held in commercial banks. The lower credit to the economy largely reflected the decline in crop credit, which fell by two-thirds, mainly because (i) lower world prices for cocoa and coffee reduced the financing needs of the sector; (ii) banks remained reluctant to lend to certain exporters in light of nonperforming crop credits; and (iii) exporters increasingly arranged financing from abroad. The contribution of Côte d’lvoire to the foreign assets of the Central Bank of West African States (BCEAO) fell in 1999.

Figure 6.
Figure 6.

Côte d’Ivoire: Net Credit to the Government as a Share of Domestic Credit, 1993-99

(In percent)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: BCEAO; and staff estimates.

32. Monetary policy in Côte d’lvoire is set by the regional central bank, the BCEAO, which aims to conduct a prudent policy consistent with the fixed peg to the euro.24 Regarding the use of central bank interest rates, the BCEAO, after an initial sharp increase in the discount rate following the devaluation, progressively eased credit conditions. The discount rate was lowered from 14.5 percent in January 1994 immediately after the devaluation to 7.5 percent by December 1995 and to 6 percent by September 1997 (Statistical Appendix Table 34). The rate was raised briefly in late 1998 in advance of the shift of the peg of the CFA franc from the French franc to the Euro, but it was lowered again in January 1999 to 5.75 percent, where it has remained.25 The movements of rates on the regional money market, which is intermediated by the BCEAO, have largely mirrored movements in the discount rate and currently stand at about 5 percent. Since late 1998, there has been little activity on the regional money market, and no injections of liquidity by the monetary authorities. Activity on the regional interbank market has remained subdued, with rates averaging slightly above the money market rate.

33. In recent years, the BCEAO has diversified the range of debt instruments and monetary policy instruments at its disposal. In August 1994, the authorities issued, in coordination with other WAEMU member countries, CFAF 186 billion in 12-year government securities with the aim of mopping up the commercial banks’ excess liquidity that had emerged following the devaluation, in part because of the return of flight capital. By September 1995, the entire stock of these securities had been sold, mostly to banks in other WAEMU countries. In August 1996, to further absorb excess liquidity in the banking system and widen the number of indirect instruments, the BCEAO introduced auctions of central bank bills. The most recent innovation in indirect instruments was the issuance in 1999 by Côte d’lvoire of treasury bills on the regional money market.

E. External Sector Developments

34. Côte d’lvoire is an open economy relative to other countries in the region, as the sum of its exports and imports has averaged over 60 percent of GDP since 1994 (Statistical Appendix Tables 37 and 38). Consequently, shifts in the terms of trade have a large impact on national income. Following the 1994 devaluation, the resumption of economic growth and domestic demand was aided considerably by a strong upturn in the terms of trade, which rose 28 percent cumulatively in 1994 and 1995 (Statistical Appendix Table 43). This improvement reflected sharp increases in world prices for cocoa, coffee, cotton, and other agricultural export crops, as well as declining import prices.26 Côte d’lvoire was initially spared the terms of trade shock precipitated by the Asian crisis in late 1997, as strong prices for cocoa and coffee offset adverse movements in world prices of other commodities. By late 1998, however, cocoa and coffee prices had started to decline, a trend that continued through 1999 with an adverse impact on the economy. Although at end-1999 Côte d’lvoire’s terms of trade were about 9 percent higher than they had been at end-1993, most of this gain is likely to be lost in 2000 when the full impact of the drop in cocoa prices is felt (Text Table 3).27

35. After appreciating by 3½ percent in 1998, the consumer price index-based real effective exchange rate (REER) depreciated by about 6 percent in 1999, in large part reflecting the strengthening of the dollar against the euro (Statistical Appendix Tables 52 and 53). At end-1999, Côte d’lvoire’s REER was 28 percent lower than the 1994 predevaluation level, indicating—by this measure—that a large part of the competitiveness gains had been preserved.

Table 3.

Côte d’Ivoire: Key External Indicators, 1991-99

(Percent change)

article image
Sources: BCEAO; and staff estimates.

36. Regarding export developments, the huge boost in cocoa exports starting in 1995/96 accorded cocoa an even more dominant share of Côte d’lvoire’s exports; however, this trend is now receding owing to the adverse evolution of world prices (Statistical Appendix Table 39). In this vein, despite efforts at diversification of exports, Côte d’lvoire has so far remained very dependent on primary commodities. In particular, cocoa and coffee still represented 35 and 6 percent, respectively, of total exports in 1999, roughly the same proportions as in the early 1990s. On the import side, volumes have mirrored trends in investment, posting a sustained progression (above 5 percent a year) between 1996 and 1999. Through 1998, imports were led by strong growth in imports of capital goods. Côte d’lvoire has continued to run a deficit in the services account (including factor income), in part because of the continued heavy interest burden of public debt.

37. Reflecting these developments, the external current account deficit fell significantly following the devaluation, and since 1998 has remained close to 4 percent of GDP. However, the situation started to deteriorate in 1999, and this adverse trend is expected to accelerate in 2000, in line with developments in the terms of trade, as noted above; the current account deficit is projected to jump to approximately 5½ percent of GDP in 2000.

38. Regarding the capital account of the balance of payments, the most noticeable development over recent years has been the sharp slowdown in external assistance in 1999 (Statistical Appendix Table 45), which led to a widening in the overall balance of payments deficit from 1 percent of GDP in 1998 to 4 percent in 1999. This came after the substantial resurgence of external support starting in 1994; this support, which led to comprehensive debt restructurings from the Paris Club and London Club, providing Côte d’lvoire with sizable short-term relief.

39. Côte d’Ivoire’s major trading partners have not shifted substantially in recent years (Statistical Appendix Tables 40 and 42). Although France has remained a key export destination (close to 30 percent of the total), the European countries’ share has declined somewhat, while exports to Africa and Latin America have increased slightly; these trends accelerated in 1999. Principal import markets remained essentially unchanged.

40. Between 1995 and 1999, Côte d’Ivoire’s external public debt declined in absolute terms, from US$16 billion to about US$12 billion, and as a share of GDP, from 158 percent to 98 percent (Statistical Appendix Tables 48 and 49). This drop primarily reflects the reduction in debt owed to commercial banks following the 1998 debt-restructuring agreement with the London Club. Such debt represented approximately 23 percent of the total stock of public external debt at end-1999, against 39 percent in 1994. The stock of debt to Paris Club members represented 41 percent of total public external debt at end-1999. France is the major bilateral creditor (22 percent at end-1999), followed by the United States (4 percent) and Germany (3 percent). Finally, debt to multilateral creditors amounted to 36 percent of the total in 1999, of which the World Bank Group (20 percent), the African Development Bank (6 percent) and the Fund (5 percent).

41. Concurrently with Board approval of the ESAF arrangement in March 1998, the Fund and the World Bank agreed that Côte d’lvoire had qualified for assistance under the Heavily Indebted Poor Countries Initiative (HIPC Initiative). However, in light of the delays in reaching understanding on a Fund-supported program, the schedule of the completion point (originally set for March 2001) will have to be revised at the time of presentation of a new enhanced HIPC Initiative decision point document.

F. Structural Policies 28

42. Since 1994, the Ivoirien authorities have embarked on a wide-ranging structural reform agenda aimed at reducing the weight of the public sector in the economy and expanding economic incentives for private sector development. The ultimate objectives are to increase income and employment, while ensuring that public resources are directed to priority public expenditure (especially health, education and basic infrastructure). In the agriculture sector, a range of reforms was carried out, culminating in the liberalization of coffee marketing in October 1998 and the liberalization of cocoa in August 1999 (see Section II). Following the extensive price and trade liberalization measures put in place during 1994-97, the authorities moved ahead with implementing the WAEMU common external tariff (Text Table 4), with the effect of lowering the average tariff rate from 18 percent to 14 percent. The combination of tariff reductions and the liberalization of exports resulted in a substantial opening of Côte d’Ivoire’s trade regime. The classification of Côte d’Ivoire’s trade restrictiveness on the 10-point scale developed to assess trade reforms in Fund-supported programs was lowered from 9 prior to 1997 to 5 at the beginning of 2000.

It is expected to be further reduced to 2 with the anticipated full liberalization of petroleum imports later this year and full compliance with WAEMU agreements.29

Table 4.

Côte d’Ivoire: Customs Tariff Rates, 1997-2000 1/

(In percent)

article image
Source: Ivoirien authorities.

Rates include droit de douane and droit fiscal.

Implemented March 1998.

Implemented July 1999.

Implemented January 2000.

43. In the area of privatization, a study on the privatization of public enterprises in Côte d’lvoire since 1994 was completed in October 1998. The study concluded that privatization had overall been successful and the economic results encouraging. Notably, labor productivity, profitability, and employment increased on average following privatization. Since 1998, 13 enterprises have been privatized, including a major bank, BIAO (Statistical Appendix Table 27). In addition, state shares in 7 other enterprises were sold on the regional stock market (some of these enterprises had earlier been the subject of partial privatizations) and 3 enterprises were liquidated. Progress, however, has been slow on two large privatizations. A call for bids for the petroleum refinery (SIR), the largest company in the Ivoirien economy, was launched, and a potential buyer chosen. However, the new authorities wished to reexamine the dossier and will reissue a new call for bids in mid-2000.

44. In the area of financial sector reform, to address the weaknesses in the national postal and savings agency (SIPE), the government adopted decrees in June 1998 separating the postal services from the financial services. While this reform compelled the authorities to examine more closely the financial operations of the two new entities and consider how they might be made more viable, the new postal savings agency (Caisse d’Epargne et des Cheques Postaux—CECP) has continued to accumulate sizable losses. The authorities have also been addressing, in collaboration with the regional banking commission, the nonperforming crop credits that arose in the cocoa and coffee sectors in 1997. The Ministry of Justice has urged the banks to pursue their claims and, in order to encourage the banks to follow up on favorable court decisions, has suspended the deposit that creditors are normally required to post in order to enforce court decisions on recoveries.

G. Conclusion

45. The strong rebound in Côte d’lvoire’s economic performance following the 1994 devaluation permitted the first sustained improvement in per capita income after several years of decline. The impressive growth performance was paired with a return to low inflation and a sizable reduction in external imbalances. At the same time, the authorities made substantial progress on a wide-ranging reform program. Central to these efforts was a reduction in the overall fiscal deficit, which allowed a steady improvement in public savings and a reduction in the debt burden. Significant progress was also made in the structural area, improving the climate for private sector activity and precipitating a strong boost in private investment. However, weak policy implementation in the last two years and very unfavorable external developments have combined to threaten many of the gains achieved since 1994. On the fiscal side, revenue performance has slipped considerably, expenditure control remains a major difficulty, and Côte d’lvoire continues to be highly dependent on external assistance. In the structural area, implementation of key measures has slowed down. At the same time, the sharp downturn in the terms of trade has adversely affected economic activity, with a sizable impact on incomes, particularly in the rural sector.

46. In the face of these difficulties, Côte d’lvoire should move ahead with steadfast implementation of its reform agenda and not backtrack on the gains achieved thus far. The authorities should redouble their efforts to consolidate the fiscal situation and ensure that resources are available for priority public expenditure. In this vein, continued actions to strengthen revenue performance through improvements in tax and customs administration and the fight against fraud are essential. Likewise, a concerted effort is needed to contain nonpriority spending, avoid off-budget outlays, and ensure implementation of priority public expenditure, especially in the social sectors. On the structural front, the authorities recognize that the private sector is the engine of growth and employment, and to this end they should strengthen the climate for private sector activity through continued public enterprise reform, a strengthening of the judicial system, and a correction of weaknesses in the financial sector. Renewed efforts will likewise be needed to adequately address governance issues and improve the management of public resources. Progress on all these fronts should allow Côte d’lvoire to achieve its growth potential and bring about a sustained reduction in poverty, while ensuring internal and external financial viability over the medium term.

II. Recent Developments in the Cocoa and Coffee Sectors 30

A. Background

47. With more than a 40 percent share of global output, Côte d’lvoire is the world’s largest producer of cocoa.31 The cocoa sector, which accounts for about 15 percent of GDP and 35 percent of total exports, has a key impact on Côte d’Ivoire’s macroeconomic performance. The coffee sector is also an important crop in Côte d’lvoire, representing 6 percent of total export receipts and making Côte d’lvoire Africa’s largest producer of robusta coffee. A strong link exists between developments in the cocoa and coffee sectors and the evolution of poverty in Côte d’lvoire. According to the World Bank, 75 percent of the poor live in rural areas, where poverty increased after 1985 in line with the country’s economic decline and the drop in world prices for cocoa and coffee.32 The World Bank identified producer prices of principal export crops as key determinants of income opportunities.33 For these economic and social reasons, it is essential that the major gains recently achieved in liberalizing these sectors and raising the share of the world price received by producers are sustained, so that increased efficiency and competition in the cocoa and coffee sectors allow for higher producer prices, which will directly benefit the rural poor.

48. Following the steady output growth and favorable international prices in the 1970s and early 1980s, sharp declines in world prices, beginning in the mid-1980s, led to a fall in output and revealed the weaknesses of the stabilization system in place. During the 1980s, Côte d’lvoire price stabilization fund (CAISTAB)34 posted substantial financial losses and generated sizable public liabilities, and its ability to provide support to the sector vanished. A reform program was gradually initiated in 1989 and accelerated following the 1994 CFA franc devaluation. More recently, adverse world price developments have led to a fall in producers’ income and stalled progress in reducing rural poverty. This section provides a brief update on the reforms achieved and the impact of the decline in world prices.

B. The Liberalization of the Cocoa and Coffee Sectors

Completing a decade of reforms (1989-99)

49. Initial reform efforts.35 Côte d’lvoire initiated key reforms of its cocoa and coffee sectors in 1989, with the support of the World Bank and other donors. This effort aimed at improving the financial equilibrium of the sector and reducing government involvement. However, despite some gains, a number of measures were not carried out: by the early 1990s, the transparency, accountability, and efficiency of CAISTAB’s operations had not significantly improved, and operational audits had not been followed up with remedial actions. In addition, given the increasingly overvalued exchange rate in the early 1990s, the financial viability of the sector was restored only through cuts in producer prices. This situation led to a deterioration in the quality of cocoa and coffee and produced a dampening of output, with many farms increasingly neglected or abandoned. On the whole, agricultural income fell dramatically during the early 1990s, triggering a rise in rural poverty.

50. The post devaluation agenda. The authorities launched a new reform program of the cocoa and coffee sectors in 1995, supported by the World Bank’s agricultural sector adjustment credit and in cooperation with other donors, including the Fund. This time, most reforms were carried out as planned, in particular (i) a reduction in the role of CAISTAB in domestic and external marketing to provide a larger role for private sector participation in the sector; (ii) cuts in CAISTAB’s operating expenses, which acted as an implicit tax on producers, and increased transparency of its operations; and (iii) a reduction in the unitary tax applied to cocoa exports (droit unique de sortie —DUS), and its elimination for coffee exports.

51. The achievement of full liberalization. Following the liberalization of the coffee sector in October 1998, the 37-year-old price-fixing mechanism for cocoa was eliminated on August 12, 1999, and a new institutional framework was introduced. In particular, the dissolution of the old CAISTAB led to the creation of the new CAISTAB, a mixed public-private company whose role was limited to regulatory and advisory functions.36 In parallel, a new farmers’ organization was created, the Federation Ivoirienne des Producteurs de Café-Cacao (FIPCC), to better coordinate the interests of the farmers. In April 2000, the decision was taken to abolish the new CAISTAB, which is to be replaced by a fully private entity that will manage a privately run system of forward sales.

Remaining reforms

52. Now that the administered price structure has been abolished, the fundamental objectives of the liberalization of Côte d’Ivoire’s cocoa (and coffee) sector are within reach: reducing marketing costs in order to increase the producers’ share of world prices, allowing producers’ income to vary with world prices, and creating strong and independent producers’ organizations. In addition, the transfer of the risks of cocoa exporting from the public to the private sector should help promote a stronger and more efficient financial sector.37

53. However, given the inherited lag in private sector development in Côte d’Ivoire’s cocoa sector, as well as the need to limit the risks of disruption in the transition to a liberalized environment, a full set of measures to accompany the reform process was designed in collaboration with external experts. So far, the degree of implementation of those measures has been limited. Significant progress is still needed to secure a sound and more stable framework allowing for competitive and efficient private sector operations.

54. A key priority is to strengthen producers’ organizations. Thus far, such structures (Organisation de Producteurs Agricoles; OPAs) are not yet fully organized and vary considerably in their technical, financial, and managerial capacity. The new legal framework governing OPAs, which came into effect at the beginning of 2000, should help build up the credibility of cooperative structures, improving their access to the credit and institutional support available to the sector. A particular effort should be made to widen management training in order to build capacity at the OPA level. At end-January 2000, about 130 OPAs had been registered in the cocoa and coffee sectors.38

55. Against this background, investment in rural areas is another priority. It will be critical to improve transport infrastructure to reduce costs and help promote competition among buyers and transporters. In parallel, a producers’ information system should provide real-time information on market conditions and costs at all levels of the sector to all its participants.

56. Other recommendations have been made with the aim of contributing to the stability of world prices and producer prices, given Côte d’Ivoire’s weight in world cocoa production and the strong impact of developments in Côte d’lvoire on world price movements. For example, it has been suggested that Côte d’lvoire might benefit from shifting the current system of export taxation from a unitary tax to a variable rate, which would fall when international prices are low and increase when they evolve more favorably. While such a system might help stabilize producers’ income and would remove some of the discretion present in the current system, its potential impact remains unclear.

C. Recent Output and Market Developments

Trends on cocoa world markets

57. Market fundamentals. World cocoa supply and demand increased annually by 1.9 percent and 2.3 percent, respectively, over the last ten years. Meanwhile, Côte d’lvoire’s production increased faster, at an average annual rate of 4.4 percent. In 1998/99, while the financial crisis in Asia had no immediate impact on the cocoa market because of the low consumption of cocoa in the countries affected, the August 1998 crisis in Russia led to a sharp drop in consumption in the former Soviet Union (FSU), and had a significant dampening effect on world prices.39 These conditions continued through 1999. Estimated grindings in Germany40 (previously accounting for close to 10 percent of the world total) for the 1998/99 crop year were down by 10 percent, in large part because of lower exports of finished and semifinished products to the Russia/FSU countries. Similarly, Netherlands, the world’s largest processor of cocoa, recorded a 2 percent drop in total grindings from 1997/98 to 1998/99.

58. As a result of these developments—coupled with flat demand in the rest of the world, including the United States—total world grindings were estimated to have fallen by 1 percent in 1998/99, the first drop in seven years (Text Table 5). Although some analysts see an upturn in grindings for 1999/2000, in line with an anticipated recovery in many consuming countries, recent estimates point to a sharper rise in world supply: production would increase by 8 percent, while international demand would only progress by 3.5 percent. If confirmed, such trends will move the market back from deficit to surplus.41

Table 5.

World Cocoa Balance, 1990/91 and 1996/97-1999/2000

(In thousands of tons)

article image
Sources: Ivoirien authorities; International Cocoa Organization, 2000; and staff estimates.

Gross crop adjusted by subtracting 1 percent for loss in weight.

59. A separate issue that has hung over the market for some time is the European Union (EU) decision to allow the use of vegetable oils other than cocoa butter in chocolate, which had formerly been prohibited under EU regulations. The European Parliament has approved a directive that permits the use of 5 percent of non-cocoa-butter oils in chocolate, under strict labeling guidelines and restricting the non-cocoa-butter oil used to a set of “tropical oils.” A wide range of estimates of the impact on cocoa consumption of this decision have been cited, from 50,000 to 250,000 tons (about 2-9 percent of world consumption), although a more narrow estimate suggests an impact of 100,000 to 140,000 tons.

60. World prices. In the mid-1980s, increasing output by cocoa producers, in combination with subdued international demand, prompted a protracted decline in cocoa prices on world markets. Traditionally, volatility in world cocoa production has been substantial while world consumption has remained particularly price inelastic. As a result, and as is the case for many commodity markets, small fluctuations in world supply and demand conditions lead to huge variations in market prices.

61. After a rebound that started in September 1993, world prices have again been declining steadily since the second half of 1998 (Figure 7). Lingering concerns that major world producers, particularly Côte d’Ivoire—but also Ghana and Indonesia—may post record crops have played a significant role in such market behavior. Prices continued to drop as a large 1999/2000 harvest in Côte d’Ivoire was confirmed amid no sign of strong pickup in world demand. At end-1999, world prices reached their lowest levels since the early 1970s, some 40 percent below their end-1998 level. In the first half of 2000, prices have firmed slightly as uncertainties remain about the upcoming harvest.

Figure 7.
Figure 7.

Côte d’Ivoire: Cocoa World Prices, 1979:01-1999:04 1/

(U.S. dollars per ton)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

1/ International Cocoa Organization prices, c.i.f., U.S. and European ports.

62. The extent to which the recent change in European regulations on cocoa consumption has already been reflected in current cocoa prices, or whether it will continue to depress world prices, is unclear. In relation to developments in Côte d’Ivoire, world prices, following an initial jump in the aftermath of the December 1999 coup d’etat in Côte d’lvoire and absent a sufficient pickup in world demand for cacao, quickly stabilized and converged toward levels prevailing in late 1999.

Impact of developments in Côte d’lvoire on the market

63. Some observers have attributed world price developments to the liberalization of the cocoa sector in Côte d’lvoire. They argue that the end of the stabilization system and of the forward contracts guaranteed by CAISTAB has turned the Ivoirien market largely into a spot market, which puts immediate downward pressure on prices. The growing gap between spot and future prices does indicate some additional pressure on spot prices. Nonetheless, the argument that liberalization is responsible for world price movements seems to have little merit. First, it is clear that world oversupply conditions have been instrumental in pushing prices lower and thus, irrespective of changes in Côte d’Ivoire, there is little room for optimism regarding a strong improvement in world prices in the short term. Second, spot prices may be particularly depressed, but if such an argument were valid future prices would be substantially higher. However, future prices likewise remain at very low levels. While the forward premium has increased from about 1 percent to 1.2 percent per month, this change accounts for only a small part of the large drop in prices since late 1998 42. Third, most of the fall in world prices occurred when the stabilization system was still in place. Finally, CAISTAB’s mismanagement of the sector in 1998 and 1999 (by not enforcing export contracts), a sequence of events unrelated to the liberalization, added substantial pressure on the market at a vulnerable time for world prices.

Impact of world price developments on Côte d’lvoire

64. Since 1995, Côte d’Ivoire’s cocoa output has remained at high levels by historical standards, between 1 million and 1.2 million tons, against levels generally between 700,000 and 800,000 tons in the 1980s. Owing to favorable weather conditions, the 1999/2000 harvest has reached levels in line with volumes of recent years (about 1.2 million tons) (Figure 8). Following the 1994 devaluation of the CFA franc, until early 1998/99, before the world price drop, indicative producer prices increased sharply, rising from CFAF 315 per kilogram (44 percent of export prices) at the beginning of the 1994/95 agricultural season to about CFAF 575 per kilogram (63 percent of export prices) during the first half of the 1998/99 agriculture season (Statistical Appendix Tables 11 and 14). However, in the 1998/99 season, the slump in world cocoa prices reversed this favorable trend, and the CAISTAB was obliged to reduce the producer price for the remainder of that season to CFAF 460/per kilogram. As world prices continued their decline, producer prices have hovered around CFAF 300 per kilogram during the 1999/2000 season.

Figure 8.
Figure 8.

Côte d’Ivoire: Evolution of Cocoa Exports, 1993-2000

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: CAISTAB; and staff estimates.

65. The macroeconomic impact of the fall in world prices is also significant (see Section I). After peaking in value terms at approximately CFAF 900 billion in 1998 and 1999, and despite still high export volumes, Côte d’lvoire’s cocoa exports are projected to decline sharply in 2000 in value terms (to CFAF 688 billion). This reflects the fact that the full impact of the latest drop in world cocoa prices on export receipts will be felt in 2000. Such an adverse development largely explains the deterioration in the external current account deficit, which is expected to increase from 4 percent of GDP in 1999 to about 5½ percent of GDP in 2000.

D. Raising the Farmers’ Share of Export Prices

66. A key objective of the liberalization is to raise the share of world prices that accrues to cocoa (and coffee) producers. Since the 1994 devaluation, producers have received an increasing (63 percent in 1998/99) share of world prices but it is still lower than in other cocoa-producing countries (Figure 9). Other countries have developed liberalized marketing systems which have permitted producers to receive as much as 80-85 percent of the world price. In Côte d’lvoire, despite the elimination of the CAISTAB, a number of well-identified obstacles to higher producer prices are still in place. In particular, the chain of intermediaries remains complex and costly, given the limited availability of transport and the multiplicity of small-scale producers. In October 1999, the government reduced the tax on exported cocoa to CFAF 125 per kilogram (from CFAF 150 per kilogram) in order to ease the impact of lower world prices on the sector.

Figure 9.
Figure 9.

Côte d’Ivoire: Structure of Cocoa Prices, 1993-98 1/

(In billions of CFA francs)

Citation: IMF Staff Country Reports 2000, 107; 10.5089/9781451807851.002.A001

Sources: CAISTAB; and staff estimates.

67. Several initiatives have emerged since the 1999 liberalization of the cocoa sector that would aim to reestablish some of the perceived benefits of stabilization for cocoa growers, in particular to reduce variability in the prices paid to them. Producer organizations have recently proposed a mechanism to set prices for the crop season based on forward sales by the private sector (PVAM—Prix de Vente Anticipé á la Moyenne). However, promoting such a scheme would raise serious difficulties, including its financing (in particular its initial funding) and the risk of reintroducing implicit public liabilities, even if the system is ostensibly private. In addition, since producer organizations are still nascent, identifying credible producer representation at the national level is still a challenge. For its part, the government in March 2000 implemented a ban on the export of small or low-grade cocoa beans to reduce supply pressures on the world market and encourage more quality control in Ivoirien cocoa production. However, the actual impact of these measures is hard to predict and could well be only marginally favorable, at least in the near term.

E. Conclusion

68. The government’s task of staying the course and maintaining the reforms implemented in recent years is undeniably made more difficult by the sharp drop in world cocoa prices. The risk that a fall in domestic cocoa prices may be used to discredit the liberalization process was not unforeseen. However, as discussed above, the link between liberalization and the drop in producers’ prices must be discarded. Past experience in other countries demonstrates that agricultural liberalization has clearly benefited the poor through increased producer prices. Thus, continued efforts are needed to strengthen producer organizations, so that they can better take advantage of the new liberalized environment.

III. The Financial Sector43

A. Overview

69. The financial sector in Côte d’Ivoire remains dominated by the banking system, which comprises 15 deposit money banks with 160 branches. In addition, the sector includes 7 nonbank credit institutions and 27 insurance companies. A wide range of microcredit and local savings institutions also provide financial services to rural areas and to small and medium-sized enterprises. The Ivoirien financial sector is complemented by the regional stock exchange—the successor to the Abidjan Stock Exchange—which began operations on September 16, 1998. Banking supervision in Côte d’lvoire is carried out by the regional banking commission, which supervises banks and nonbank financial institutions in the subregion through on-site inspections and off-site analysis of monthly statistics to ensure compliance with the existing prudential regulations. Enforcement of banking commission recommendations rests with the Ministry of Economy and Finance.

B. The Banking Sector

70. Côte d’Ivoire’s banking sector was significantly strengthened in the early 1990s in the context of a financial sector restructuring program that included, inter alia, the liquidation of several banks, the settlement of government arrears, and the recapitalization of banks. At end-1998, the banking system totaled CFAF 1,417 billion (21 percent of GDP) in loans and CFAF 1,387 billion in deposits. Banking activity is concentrated among the five largest banks, which (excluding Caisse Autonome d’Amortissement—CAA) hold close to 85 percent of the deposits and loans, with the largest two accounting for nearly half of total activity. The sector is still facing some weaknesses, and several sources of systemic risk remain:

  • Recent information from the banking commission indicates that, as of December 31, 1999, the position of the banking system vis-á-vis the prudential regulations was as follows:44 (i) 1 bank out of 15 lacked the minimum equity capital (CFAF 1 billion); (ii) 4 banks (holding 38 percent of deposits) were in violation of the risk concentration rules; (iii) 6 banks (holding 56 percent of deposits) were not in compliance with the liquidity ratio; (iv) 7 banks (holding 69 percent of deposits) had a ratio of long-term resources to long-term credits below the prudential minimum; and (v) no bank was in compliance with the portfolio structure ratio (which stipulates that 60 percent of a bank’s lending portfolio must qualify for refinancing at the central bank—the system of accords de classement).

  • Although only one bank was not satisfying the capital adequacy ratio, the ratio was set at 4 percent of risk-weighted assets, below the international norm of 8 percent. Similarly, the current risk concentration rule caps the amount a bank can lend to a single borrower at 100 percent of its equity capital, whereas the international standard is 25 percent. However, new prudential regulations have been adopted, effective January 2000, that are more in line with the level of international standards and practices recommended by the Basel Committee on Banking Supervision. In particular, the minimum rate of own capital to risk-weighted assets is being increased from 4 percent to 8 percent. The ratio of the highest exposure to own capital was reduced from 100 percent to 75 percent. Banks have been granted a two-year adjustment period to meet these new ratios.

  • Losses of cocoa and coffee exporters during the 1996/97 and 1997/98 crop years led to a stock of CFAF 80 billion of nonperforming crop credits at end-1999 (about 6 percent of banks’ total assets). The two banks most seriously hit by those nonperforming loans were either fully controlled by the state (but privatized in early 2000) or one in which the state retained a significant minority stake. The process of recovering those assets has been disappointingly slow. Although 17 judgments had been reached in the 23 pending cases as of end-March 2000, only CFAF 3 billion, out of a total of CFAF 64 billion for those 23 cases, had been collected.

  • More generally, at end-1998, the bad loans of the system as a whole (CFAF 344 billion) represented nearly 25 percent of total outstanding credit, necessitating an overall provisioning effort of CFAF 230 billion, or nearly ten times the net earnings of the entire system in 1998.

  • In past years, there has been a predominance of coffee/cocoa industry financing, leading to sectoral concentration of risk and a concentration on a few borrowers (fewer than ten customers). While these problems remain, and constitute a structural weakness of the Ivoirien banking system, there was a sharp drop in crop credit in 1999. This fall reflects in part a reduction in the sector’s financing needs owing to lower producer prices, as well as the continued reluctance of banks to lend to certain exporters in light of nonperforming crop credits. In addition, exporters increasingly arranged financing from abroad through the head offices of their external partners.

  • The banking system has so far been unable to mobilize long-term savings: 90 percent of deposits are of less than six months duration. The percentage of households with bank accounts is only 11 percent.

  • The institutional framework of banking activity is insufficiently organized. The professional banking association does not play an active role; the legislation governing the activity is still not well known by those required to comply with it; and the recovery of bad bank loans is difficult, despite the adoption of legislation containing simplified procedures under the OHADA treaty.

  • Continued efforts to restructure the banking system should be pursued. One major bank, the BIAO, has now been privatized, and the authorities aim to reduce their stake in another, the SIB (49 percent at present). However, the difficulties concerning the postal and savings entity (CECP—the former SIPE) and CAA have not been resolved. In the case of the CECP, accumulated operating losses are estimated at more than CFAF 60 billion (0.9 percent of GDP). The authorities need to examine closely the causes for these losses and implement a strategy for putting the CECP on a sound financial footing. The CAA, which in 1998 received a banking license, as well as a five-year waiver of prudential regulations, has encountered significant liquidity difficulties.

C. The Insurance Sector

71. Insurance operations in Côte d’lvoire are governed by the rules of the Conference Interafricaine des Marchés d’Assurances (CIMA), which comprises most CFA zone countries and is based in Libreville, Gabon. CIMA’s code of conduct closely follows French laws on insurance. Licensing and supervision of insurance companies are carried out by the Commission Régionale de Contrôle des Assurances (CRCA), although the Ivoirien Ministry of Finance still has the right to refuse a license, even if approved by the CRCA. National supervisors can also make on-site inspections, or request one from the CRCA, and they are responsible for the implementation of the CRCA’s decisions.

72. The sector comprises both mutually owned and incorporated companies. At the end of 1998 (the last year for which detailed data are available), there were 27 insurance companies, including 10 life insurance companies (with one new entry in 1998) and 17 specializing in IARD (fire, accidents, and various risks). Insurance companies can be licensed to operate in either sector but not in both (as a principle of specialization—many companies, however, are related through common shareholders). There has been a sharp decline, in the number of companies since the early 1990s, when more than 40 companies were active, owing to mergers or liquidations as a result of financial problems.

73. The total assets of insurance companies were CFAF 171 billion at end-1998, while the premiums collected in 1998 totaled CFAF 105 billion, of which CFAF 75 billion (or more that 70 percent) for the IARD sector. There is considerable concentration in the life insurance sector, with the first two companies accounting for more than half the premiums paid, while in the IARD sector there is less evidence of concentration, with the five largest companies controlling little more than half the market.

74. There are no reinsurance companies in Côte d’lvoire, but local companies are required to reinsure part of their exposures with two regional reinsurance organizations. These are CICARE, whose shareholders are the CIMA members, and Africa-Re, whose headquarters are in Lagos. Insurance companies have to reinsure 15 percent of their exposure with CICARE and 5 percent with Africa-Re.

75. Seven insurance companies were classified by regulators as being in “difficulties,” requiring an injection of CFAF 6.5 billion to attain the minimum prudential requirements. The authorities do not consider that any of the companies in difficulty are large enough to have systemic effects. In some cases, it was expected that revaluing their assets at market prices would go a long way toward meeting the prudential requirements.45

76. The authorities consider that the main systemic problem of the insurance sector is the lack of liquidity of most companies, as a large part of investments are in real estate. There is evidence of intense competition in the IARD sector, especially in the automobile insurance subsector, as evidenced by low and falling premiums, which partly explains why the companies in this sector faced larger problems in meeting prudential standards. The authorities have the right to impose minimum levels of premiums, but this right is difficult to enforce and has seldom been respected.

D. The Regional Stock Exchange

77. The regional securities exchange (BRVM) began operations on September 16, 1998, succeeding the preexisting Abidjan Stock Exchange. At present, the market handles 38 shares, 37 of them Ivoirien, although the company with the highest capitalization is the Senegalese firm, SONATEL (Statistical Appendix Table 36). Capitalization of the market at end-April 2000 amounted to about CFAF 910 billion. During 1999, daily trades averaged about CFAF 215 million, while the index of the ten most widely traded shares (BRVM-10) registered a decline of about 3 percent between its inception in September 1998 and end-December 1999. Partly influenced by political developments in Côte d’lvoire at the end of 1999 and the ongoing adverse economic difficulties, the index declined by another 14 percent in the first four months of 2000. Of the sectoral indices, only the one representing financial companies has shown slight gains since their inception in June 1999, with the agricultural index having declined the most, by almost 40 percent over the same period.

78. Trades are handled exclusively by brokerage firms (Sociétés de Gestion et d’Investissement—SGI). Of the 16 authorized SGIs, 9 are Ivoirien, including 5 bank subsidiaries. In early 2000, one SGI ceased its activities owing to financial problems, while there was one new entry. Market activity, dominated by share transactions, expanded with the introduction of the Decentralized Electronic Quotation system in March 1999. Transactions are guaranteed by the Investor Protection Fund, which is financed by the SGIs.

79. The market still lacks depth and liquidity, as insurance companies and other investors with a “buy-and-hold” strategy purchase most issues. Moreover, the price formation mechanism and the monitoring of trades are not sufficiently transparent to allow for efficient price discovery and encourage outsiders to participate. The lack of liquidity is exemplified by the fact that most share prices and even the sectoral indices remain constant for many days in a row. Industrial and utilities shares account for more than 70 percent of total market capitalization.

80. The bond market, operating in the context of the BRVM, is still underdeveloped, as there are not a sufficient number of issues to allow for a deepening of the market or the establishment of a well-defined yield curve and benchmarking. Traded bonds are not credit rated, in the absence of which the regional securities commission requires that every bond issue be fully guaranteed by another institution. Although the primary market is active, with bonds valued at CFAF 160 billion issued in 1999, the secondary market remains very shallow. Of 30 bond issues listed, only 6 are traded regularly.

E. Conclusion

81. The financial sector in Côte d’lvoire, although more developed than in many other African countries, faces significant challenges. The sector has largely rebounded from the problem of nonperforming credits in recent years but still suffers from a lack of depth, insufficient capitalization, failure of banks to comply with all the prudential ratios, and recurring governance problems, linked in part to a continued state role in key financial institutions. In addition, there is a need for financial institutions to develop new products that will attract long-term savings. The government can assist by providing a stable financial framework that offers sufficient latitude for financial innovation, while strictly enforcing prudential norms and existing laws, especially those relating to recovery of claims and bankruptcy.

82. Encouraging the entry, de novo or through acquisitions, of new companies may have beneficial effects if well managed. New entrants with better capitalization, and better access to external credit markets, possibly through their parents, can introduce greater stability and intensify competition without imposing systemic risks, ultimately reducing costs for borrowers.

Table 1.

Côte d’Ivoire: Selected National Accounts Indicators, 1993-99

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Sources: Institut National de la Statistique (INS); Ministére de I’Economie et des Finances, Direction de la Conjoncture et de la Prévision Economique; and staff estimates.

Including oil production and other extractive industries.

Including import taxes and duties and public administration.

Table 2.

Côte d’Ivoire: GDP by Origin, 1993-99

(In billions of CFA francs at current market prices)

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Sources: Institut National de la Statistique (INS); Ministére de l’Economie et des Finances, Direction de la Conjoncture et de la Prévision Economique; and staff estimates.
Table 3.

Côte d’Ivoire: Supply and Use of Resources, 1993-99

(In billions of CFA francs at current market prices)

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Sources: Institut National de la Statistique (INS); Ministére de I’Economie et des Finances, Direction de la Conjoncture et de la Prévision Economique; and staff estimates.

Including reporting differences on external trade in the compilation of the national accounts and balance of payments.

Table 4.

Côte d’Ivoire: Supply and Use of Resources, 1993-99

(In percent of GDP)

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Sources: Institut National de la Statistique (INS); Mínistére de I’Economie et des Finances, Direction de la Conjoncture et de la Prévision Economique; and staff estimates.

Including reporting differences on external trade in the compilation of the national accounts and balance of payments.

Table 5.

Côte d’Ivoire: Deflators of Sectoral Output, 1993-99

(Annual percentage changes; base year= 1986)

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Sources: Institut National de la Statistique (INS); Ministére de I’Economie et des Finances, Direction de la Conjuncture et de la Prévision Economique; and staff estimates.
Table 6.

Côte d’Ivoire: Consumer Price Inflation in Abidjan, 1990-99

(Average percentage change from year earlier)

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Sources: Ministére de I’Economie et des Finances; Institut National de la Statistique; and staff estimates.

European-type household.

African-type household, headed by a professional.

Based on a basket of goods derived from a new household consumption survey.

The harmonized consumer price index was adopted by all members of the West African Economic and Monetary Union (WAEMU) and put in place in January 1998.

Table 7.

Côte d’Ivoire: Decomposition of Consumer Price Index, 1997-99 1/

(Index, 1996=100, unless otherwise indicated)

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Sources: Ministére de I’Economie et des Finances; and Institut National de la Statistique.

The harmonized index presented here was introduced by the member countries of the West African Economic and Monetary Union (WAEMU) in January 1998.

The weights used are on the basis of household surveys carried out in the WAEMU in 1996.

Table 8.

Côte d’Ivoire: Price Structure of Oil and Gas Products, 1997-99

(In CFA francs per liter, unless otherwise indicated)

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Source: Ministére des Ressources Minieres et Pétroliéres. Direction des Hydrocarbures.
Table 9.

Côte d’Ivoire: Estimates of Food Crop Production, 1993-99

(In thousands of tons)

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Sources: Ministére de I’Agriculture et des Ressources Animales; and Ministére de I’Economie et des Finances, Direction de la Conjouncture et de la Prévision Economique.