Leveraging Private Investment for Inclusive Growth
Benin enjoyed high growth in the 2010s, which did not translate into major poverty reduction. When the COVID-19 outbreak began in March 2020, the economy was growing but was weakly productive. Strong reliance on commodity exports (cotton and cashews) and transit trade with Nigeria make Benin’s economy vulnerable to external shocks and changes in trade policy. The widespread informality of the country’s private sector and its limited use of recent technologies further restrict gains in productivity and reinforce overreliance on external growth drivers. Low levels of foreign direct investment spillover from existing ones also hamper productivity.
Geographical and cultural assets, as well as a strong reform momentum, offer huge opportunities for more inclusive and sustainable growth in the country. Benin is a small, open economy with fertile agricultural land that offers potential for further private sector–driven expansion of agribusiness in fruits and vegetables for export to the regional and European markets. Access to markets and improved productivity can have a large effect on development because nearly 40 percent of employment is in the agribusiness sector.
Benin’s geographical proximity to Nigeria represents an opportunity — now only partially used — to develop a more solid tourism sector following the COVID-19 shock, with potential to further expand toward international heritage tourism in the longer run. Benin’s location at the crossing of two important regional corridors, Abidjan-Lagos and Cotonou-Niamey, calls for the private sector to reap the full benefits of business relationships at the regional level. The partial reopening of the border with Nigeria in December 2020 and the ongoing negotiations on the African Continental Free Trade Area (AfCFTA) provide a significant opportunity for regional integration.
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