1 The Socio-political Context

Chapter 1, by Jean-Philippe Platteau, emphasises the multiplicity of ethnic groups in Benin, some of which also live beyond the country’s borders. The question therefore arises as to whether such a high degree of ethnic diversity is an impediment to the long-term development of the country. Here, it is useful to distinguish between economic and political effects. Regarding the former, the idea that a potential advantage of ethnic diversity lies in skill complementarities between ethnic groups applies well to Benin, where groups such as the Yoruba and the Bariba have over time developed useful skills and experience in all sorts of trading business while many other groups have specialised in agriculture, for example.

Turning now to the political effect, ethnic diversity can create political instability, and, in this respect, the proliferation of political parties formed on an ethno-regional basis may appear worrying. Such an instability was particularly pronounced in the first decade after independence, and even during the subsequent Marxist–Leninist period, despite the authoritarian rule that was observed then. It was only in 1990, with the Renouveau Démocratique (Democratic Renewal), that the political system apparently stabilised into a liberal democratic regime, for which Benin has often been praised by donors. The democratic regime (with the economic liberalisation that goes with it) seems to have been stable, because it restored former post-colonial trade-and-wealth clusters attached to some prominent ethnic groups, which was reassuring for the donor community. It is noteworthy that, since the change of regime initiated by the Renouveau Démocratique, four presidents have succeeded each other in democratic elections, never violating the two successive mandates ceiling imposed by the constitution. On the other hand, the rotation at the highest levels of political power (presidency, parliament, and ministerial positions) of personalities belonging to different ethnic groups and regions offers a reassuring picture.

Behind the democratic façade, however, a fierce struggle opposes several wealthy men, who lead political factions based on ethnic and regional affiliations, but also based on other identity markers. Especially destabilising is the opposition between the three main branches of the dominant ethnic group (the Adja-Fon): struggles inside a group may thus be more damaging than tensions between various groups and, in the case of Benin, the Yoruba, the Bariba, and the Atacora (the three other main ethnic groups) have continuously played a key refereeing role since the time of independence, whether in an authoritarian or a democratic setting. Towards the members of their faction the Big Men or oligarchs behave as genuine patrons, implying that in return for their support and loyalty they are committed to distributing various kinds of advantages down the vertical chain at the apex of which they operate. Because they consider state power as a privileged instrument to advance their particular business interests, they seek to take control of it. Their preferred tactic to achieve that aim consists of gaining the support of a professional politician by financing his campaign expenses, or directly competing for high political positions, including the presidency. Given the multiplicity of factions, they need also to strike alliances with several other factions and small political parties, which they generally do by encouraging their regrouping under the umbrella of a wider political bloc or confederation.

Alliances are typically unstable and generate unstable policies. This feature of Benin’s political landscape is essentially explained by two factors: (1) the lack of mutual trust between the oligarchs and the resulting lack of credibility of their promises; and (2) the existence of multiple oligarchs naturally tempted by the short-term gains of coalition shifts and outmanoeuvring of rivals. An example of the resulting policy instability is provided by the wavering between public and private management of the cotton sector over the last ten years or so. Policy instability and the consequent infeasibility of long-term planning are not the only deleterious consequences of the patrimonial conception of the state among multiple greedy oligarchs and politicians. Another perverse consequence is a demoralising effect on the population, which witnesses a succession of obscure political manoeuvres as well as scandals whose most common manifestations are sheer favouritism, abuse of public positions, tax evasion, and the embezzlement of public resources. Accusations of embezzlement and rent capture concern not only prestigious construction projects, but also programmes that are critical for the well-being of the population and the long-term development of the country (such as water, electricity, and other vital infrastructure projects). In a context where most of the misdeeds and extortions stand unpunished or uncorrected, it is not surprising that the people of Benin have a particularly deep mistrust of tax authorities and the judiciary system. The positive effect of a legacy of pre-colonial centralised state organisations is thus undermined by an opaque political game in which key business actors play a major role.

The suggestion has been made that people’s mistrust of public administrations in Benin is the consequence of interpersonal distrust, possibly due to the ethnic fragmentation and as a legacy of widespread slave trading. Based on rough comparative evidence from the Afro Barometer, this seems to be untrue: if the citizens of Benin have a comparatively strong mistrust in some important institutions, they do not exhibit particularly strong distrust in their day-to-day interpersonal relations.

Major institutional hurdles, to which we shall return in Section III of this final chapter, seem to be the environment of policy instability, deep inequalities, and widespread corruption that characterises Benin. Behind this adverse environment lies a neo-patrimonial political system over which no single figurehead has exerted complete control until recently (2016). With the accession of a business oligarch, Patrice Talon, to the presidency and the concentration of powers in his hands, a major transformation of the country’s political scene has occurred. Whether the new situation can be a game changer is an important question to which we return at the very end of this chapter.

2 The Economic Development Context

Benin is a poor country whose development since the turn of the present century has lagged behind many low-income countries, including in sub-Saharan Africa. As is stressed in Chapter 2, by Romain Houssa and Paul Reding, its comparative advantage lies in two key sectors: cotton exports and illegal re-exports of manufactured imports to Nigeria. The latter has its roots in the long and porous border with Nigeria and the protection of manufacturing industry being substantially higher there than in the West African Economic and Monetary Union (WAEMU) customs union to which Benin belongs. This allows Benin to share the oil rent of its giant neighbour. Together with the importance of cotton exports, this actually gives Benin some of the qualities of a resource-rich country, including being dependent on world commodity prices and experiencing Dutch disease – through illegal imports from Nigeria, the counterpart of Benin re-exports, which crowd out some domestic activity – as well as its governance problems.

Even though cotton exports and the cross-border trade with Nigeria virtually make Benin a commodity exporter, there is a substantial difference with other developing countries sharing that characteristic. It is that the diverted oil rent is exploited by the informal sector and thus benefits directly a large segment of the non-agricultural unskilled labour force. Thus, there is a dualism between the two major sectors of the economy: a rather formal organisation of the cotton sector versus necessarily informal arrangements within the cross-border trade with Nigeria. This dualism is a key specific feature of the Beninese economy.

Natural resources or primary commodities rarely provide exporters with a stable long-run engine of development. Benin’s growth performance over the recent past has been mediocre. The ten-year mean annual rate of growth of GDP per capita has fluctuated at around 1.1 per cent. Labour productivity has grown roughly at the same pace, essentially as the result of labour movements out of low-productivity agricultural activities towards more productive sectors. Yet, this did not prevent productivity from declining in most of these sectors, whereas it remained stagnant in agriculture.

This poor growth performance partly originates in the two major sectors of the economy: cotton production and cross-border trade with Nigeria. Cotton production in Benin has long been trailing that of other West African countries, mostly because of institutional instability in the organisation of production and commercialisation. On the other hand, re-exports to and illegal imports from Nigeria have created a huge low-productivity informal sector that may have crowded out better economic opportunities. Informality is indeed markedly higher in Benin than in most countries in the region.Footnote ¹

Low rates of labour productivity growth in the other sectors of the economy are a major concern too. Whereas in the informal segment of these sectors (which is huge) low labour productivity is caused by a lack of capital, in the formal segment it stems from low capacity utilisation and inefficient organisation. An additional issue is land tenure insecurity. The problem seems particularly important in urban and peri-urban settings, as well as in rural areas in which significant migrant groups coexist with the native population. The response of the state has been hesitant and numerous changes have been made to the 2013 Land Law, which has faced many enforcement difficulties.

Prospects for faster and more stable growth in Benin lie in the diversification and restructuring of the economy. This might be possible in agriculture, as exemplified by the recent surge in pineapple exports. Some land is still available in the north of the country while yields are still low throughout the country and could certainly be improved. Progress would require more efforts in enhancing agricultural productivity and developing transport infrastructure, notably rural roads in the north. Exporting transport services through modernising the Cotonou port and transforming it into a major hub for the whole region, including Nigeria and Benin’s hinterland, is also envisaged. Progress on these diversification fronts is presently limited. If more were to be done, however, Benin’s long-run development would remain essentially based on commodity exports, with all their shortcomings.

Development strategies anchored in more knowledge-intensive activities offer better and less volatile returns than traditional activities based on raw agricultural products. However, such a re-orientation of the economic development strategy would represent a drastic change, as it necessitates huge investments in human capital to allow the country to move up the technological ladder. Over the last decades Benin has made noticeable progress on the educational front and this is a step in the right direction. Yet, this positive assessment must be qualified in two ways. First, Benin started from a very low basis, and its achievements in terms of the literacy of the population remain very disappointing. Second, much of the educational progress is in the form of rising gross enrolment in primary (and post-primary) schooling. However, the quality of education has not been improved, and has probably deteriorated during the period of increasing admissions into the schooling system.

Diversifying activity away from raw agricultural commodity exports would also require noticeable investments in infrastructure, like power supply and telecommunications. Benin is among the countries with the lowest consumption of electricity per capita, and much below the sub-Saharan median in terms of internet servers per inhabitant.

Benin’s development is not only slow, it is unequally distributed. The coastal cities of Porto Novo and Cotonou, and their hinterland, constitute the growth pole of Benin’s economy. It is in their tiny departments that poverty is kept under control, unlike in many other parts of the country where it remains intolerably high. Overall monetary poverty seems to have increased over the last decade, the same being true of inequality in consumption expenditures. Development in Benin thus appears to be unbalanced and to be marked by big spatial disparities. The northern part of the country, in particular, suffers from a lack of critical public investments, in spite of the fact that its political representatives have not been consistently deprived of access to the highest levels of state power. Lopsided spatial development has been the result.

One of the most pressing concerns regarding the development pattern of Benin is its sustainability in the medium and long run. As it stands, the economy remains heavily dependent on external financial flows, and official development assistance in particular. Although slowly decreasing, the latter still amounts to more than 6 per cent of GDP – above the median of sub-Saharan countries. The ongoing structural transformation of the Beninese economy does not offer the prospect of a foreseeable reduction in such dependence on external financing. Indeed, the significant decrease in the share of agriculture in domestic value-added has not been associated with a corresponding increase in the share of tradeable manufactured goods, but rather with a rapid increase in the share of non-tradeable services. Directly related to this weakness is the low diversification in export goods.

It is difficult not to relate Benin’s poor development performance and prospects to the way institutions have been working and still work today. Even under a so-called Marxist regime, the general long-term interest did not prevail, as key sectors of the economy, banks and financial institutions in particular, were simply appropriated by President Kérékou and his northern clique for their own short-term benefit. Albeit in more subtle forms, this kleptocratic system survived through the ensuing Democratic Renewal period, as witnessed by the continuing meddling of politicians in the economy and of businessmen in politics: the oligarchs acting behind the scenes of formally democratic institutions make key decisions in, and appear to be the effective owners of, parastatals and independent private corporations formally outside their control. This is especially patent in the case of the cotton sector, but really affects the whole economy.

Such a characterisation of Benin’s development is fully consistent with what is observed on the poverty and inequality fronts. The comparability of data over time is generally limited in this area. But, based on household surveys, few countries have seen an increase in the proportion of poor people in the population over the last ten years or so. Still fewer have witnessed the strong and continuous increase in inequality observed in Benin since the turn of the millennium.

3 Appraisal of the Quality of Benin’s Institutions

Three types of evidence on the quality of institutions in Benin and the way they could affect development performance are considered in Chapter 3, by Romain Houssa and François Bourguignon: synthetic indicators, as available in cross-country databases; a specific opinion survey among various types of local decision makers; and an analysis of the institutional implications of identified binding economic constraints in several recent growth diagnostic exercises. These various sources converge in pointing out several institutional weaknesses that hamper an acceleration of development in Benin, even though they may not always agree on the severity of these institutional constraints.

Corruption is unanimously seen as the most serious impediment to the good functioning of institutions and a favourable development context. It is found to affect practically all sectors of the economy at all levels of responsibility. This is recognised and duly emphasised by both the respondents to the opinion survey and the authors of growth diagnostic exercises. However, comparison with other countries in West and Central Africa or countries that have outperformed Benin over the last decades is less conclusive. If the World Bank Enterprise Surveys find that, from the point of view of business, the situation in Benin is substantially worse than in the average sub-Saharan country, country-by-country comparison leads to different conclusions. As can be appraised through synthetic indicators, the degree of corruption in Benin turns out to be roughly comparable to that in neighbour countries. It might even be lower than in several countries that nevertheless grew faster than Benin over the last twenty years, this being true today as well as ten or twenty years ago, when the GDP per capita was much smaller. Such findings may reflect the conceptual imprecision of synthetic corruption indicators, but they also call for a more nuanced analysis of the effects of corruption on the development of a specific country. Corruption may have other deleterious effects on development but, even when sizeable, it may not prevent fast GDP growth in an economy endowed with a solid exogenous engine of growth, as is the case in several Asian countries that rely on labour-intensive manufacturing exports.

Weak public management is the second unanimously recognised source of hindrance in the process of development. Of course, this may partly be the consequence of corruption. Here too, the cross-country difference in synthetic indicators of the quality of public management across countries is not strongly unfavourable to Benin. Yet, some sectors are singled out as particularly weak by survey respondents and analysts. Three of them are repeatedly singled out. The tax system is found to be complex and the tax administration grossly inefficient in collecting tax revenues, with clear adverse consequences for the dependency of Benin on foreign finance. The power sector, run by a state-owned monopoly, is found to perform badly due to weak or ineffective regulation.Footnote ² Finally, if the delivery of social services, especially education, is found to have made progress in quantity, this is not the case for quality. Benin underperforms compared to other sub-Saharan countries by a wide margin and, from that point of view, lags very much behind the countries that have grown faster despite having the same initial level of income as Benin twenty years ago.

The opacity of government policy making with respect to the public is another weakness stressed by survey respondents. This is probably to be imputed to weak public management, but it is also a sign of deficient political institutions, generally regarded as weaker than in other sub-Saharan countries. On this point, however, survey respondents are somewhat ambivalent. On the one hand, many of them tend to trust constitutional institutions and are confident about the success of some current reforms. On the other hand, most also agree that the whole system is deeply corrupt and, because of this, often dysfunctional. Such a severe judgement even appears in the opening remarks of the official Country Partnership Framework, a cooperation agreement between the Government of Benin and the World Bank.

Available statistics show that informality is more developed in Benin than in the average sub-Saharan country. Growth diagnostic analyses suggest that it has a cost in terms of tax revenues, job precariousness, and lack of control over the economy. This is not a point that appears strongly in the opinion survey, maybe because of the presence of a substantial group of informal firm managers in the sample. It is not a dimension of institutions that appears explicitly in the synthetic indicators provided by international databases either. The reason why informality is more developed in Benin than in most developing countries, including in sub-Saharan Africa, is clear: it is more the result of the importance of the illegal cross-border trade with Nigeria than the result of some specific institutional failure. Yet, its consequences for the functioning of institutions are serious.

A last area deserves mention, even though it is not prominent in the opinion survey and not explicitly covered by synthetic indicators: it is the way land allocation is managed. One of the growth diagnostic studies of Benin mentions that land is becoming scarce in the southern part of the country, so that managing it efficiently will become more and more crucial in the future. As in the other sub-Saharan countries, land operations raise difficulties in Benin because of the uncertain status of ownership and the legacy of customary practices. A reform was advanced in 2013, which, according to the opinion survey, is found to be complex and does not really resolve the sources of land conflict. Land laws and their implementation show weaknesses whose economic consequences may be considerable in the future, especially in a country with a comparative advantage in agriculture.

1 Business and Politics: A Clear Case of Complete State Capture

Benin does not differ from many other countries in the collusion that exists between business and politics. Yet, it may be exceptional in the extent of that collusion, as illustrated by top businesspeople having now captured not only the economy but also the executive, and possibly legislative power.

The original piece of research by Rafael Ch Duran, Matthias Coffi Hounkpe, and Léonard Wantchekon in Chapter 4 focuses on local governments and the deals they make during electoral periods with businesspeople who often end up in full control of local politics. By interviewing some 189 candidates in local and legislative elections about the way their campaign was financed and the kind of agreement made when business was involved, they show the importance of business finance in an electoral democracy where public campaign funds are limited or even non-existent and electoral institutions are weak. They also analyse the levers that business thus acquires in relation to the local economy.

The average cost of a local election campaign is around US$36,000 and US$160,000 in rural and urban areas, respectively. On average, these amounts are equivalent respectively to eighteen and eighty times GDP per worker; that is, a campaign costs roughly the equivalent of employing eighteen to eighty workers during a full year. Business support is on average around 50 per cent of these amounts, the rest being contributed by party or party coalition funding. In exchange, politicians, if elected, must compensate firms through various channels, including policy concessions and public procurement in their favour, patronage, or the awarding to funding firms of some control over the recruitment of local political executives.

Chapter 4 also makes use of the natural experiment provided by the electoral reform undertaken by the present administration a few months before the 2019 local legislative election. This reform aimed at reducing the number of competing parties by forcing them to regroup. It was justified on the grounds of the extensive fragmentation of parties in Benin, which bears a relation to the ethnic diversity of the population. At the time of the reform of the electoral code, some 250 parties were listed! Whether due to frictions in the adjustment process or deliberate political strategy, it turned out that only two party groupings were validated for the 2019 election. For that election, the pre-existent multiparty system had collapsed to a two-party bloc competition.

The natural experiment arises from the fact that, prior to the 2019 election, many communes had a multiplicity of parties competing with each other, as was observed in the 2013 election. Since no more than two contenders were allowed in the new election, complying with this rule drastically reduced the extent of electoral competition. In some other communes, however, it was already the case that the competition was between the two new party coalitions, as could be judged from the 2013 election. In the absence of signs suggesting that the competition had changed by 2019, the latter communes thus provided an interesting ‘control’ group to be compared to the other communes where the reform was exogenously modifying political competition.

If the reform is interpreted as reducing the uncertainty about who is going to win the election, sponsoring firms should spend less on protecting their vested interest and/or impose weaker conditions in case of victory. It may also be surmised that, with fewer contenders, firms will spend less on supporting the candidates and, because they have less to recoup, they will be less demanding in case of victory. In other words, there should be less state capture, or less control over local governments’ action, in the communes affected by the reform. This is indeed what was observed. Funding firms were less insistent on having allies appointed in key executive positions in local governments. Irrespective of the reform, the same observation could be made in communes where the previous election was less contested – that is, where the incumbent had won with a large margin.

These results are very interesting because they shed light on the extent of state capture by business interests, and on some of the determinants of state capture. Clearly, more public funding of candidates, a cap on private funding or on the total cost of campaigns, or strict requirements of transparency of campaign funding should all contribute to reducing the influence of private business on electoral outcomes and state capture. The sheer ability of business to influence political outcomes would thus be reduced and its secretive interventions would be publicly exposed, with the effect of reinforcing the political opposition.

The discussant of this chapter, Cesi Cruz, is right in stressing that the relationship between local politicians and firms may be more complex than described by candidates to local elections when we notice that both local politicians and firms are part of networks – political parties, multiunit firms, and their network of suppliers. Deals might thus be at the network level; that is, between national- or regional-level politicians or parties and big firms.

Extending the analysis in that direction would be a formidable undertaking. Without going so far, it may simply be stressed that the business–politics relationship analysed at the local level in Chapter 4 clearly generalises at the national level. The rise of a major businessman, Patrice Talon, to the presidency in the 2016 election, and the circumstances of that election, perfectly fit that analogy.

State capture by private interests in Benin is observed at both the local and the central levels, even though Chapter 4 suggests that the 2018 electoral reform may have weakened it somewhat at the local level. At the national level, however, the rise of Talon to power may indeed be considered the ultimate stage of state capture. That he was a candidate in the first place is easily understood given the animosity that had developed with President Yayi, despite having been the main financial supporter of his re-election in 2011. Being practically impeached in Benin, and wary that this situation would endure if the candidate of continuity, Lionel Zinsou, were elected, the conquest of the presidency was a rather logical move. Here is a radical form of political strategising on the part of the business elite. The rival business tycoon, Sébastien Ajavon, was also a candidate for precisely the same reasons; that is, to regain rents initially confiscated by the previous government. Eventually, the latter joined forces with Talon in the run-off of the election, despite their long-lasting rivalry.Footnote ³ Beninese politics had been overwhelmed by big business.

A deep cause of this rather successful capture of the state by business, at both local and central levels, may lie in the relative weakness of central political power due to the political fragmentation of the population: 250 political parties and 48 candidates at the last presidential election. Even under the democratic presidency of a seasoned ruler like Kérékou between 1996 and 2006, party coalitions in power were fragile and prone to corruption, whereas securing alliances to win an election was particularly costly. Indeed, the number of major corruption ‘affairs’ involving high-level politicians over the last fifteen years or so is quite impressive. Although less publicised, it is likely that such affairs occur in large numbers at the local government level.

Another conclusion of this reflection on business and politics in Benin is the absolute necessity of effective transparency in electoral financing, at both the national and local levels. In effect, a law does exist that limits the total amount that can be disbursed in a campaign, and official campaign accounts are required from candidates. These accounts are audited, and candidates may be charged for having spent more than the maximum amount allowed on their campaign.Footnote ⁴ Practically, however, the system remains extremely opaque and/or is gamed by the main actors.

It would be difficult to conclude this brief analysis of the relationship between business and politics without mentioning the political consequences of the 2018 reform of the electoral code for the April 2019 parliament election. Because of the noise created by a reform that forced some regrouping of parties within bigger alliances, only two groups, both favourable to President Talon, were finally allowed to compete in that election. The election was boycotted by the opposition, which strongly condemned this de facto breach of democracy. A political crisis unfolded, betraying an unexpected fragility in the institutions of a country that was praised precisely for its respect of the rules of democracy.

2 The Management of the Cotton Sector

Cotton is the backbone of the formal Beninese economy. As mentioned in the first paragraph of Chapter 5 on the cotton sector by Barthélemy Honfoga, Romain Houssa, and Houinsou Dedehounaou, it accounts for 13 per cent of GDP, 60 per cent of (formal) export revenues, 45 per cent of taxes – excluding tariffs – and 60 per cent of manufacturing output – through ginning and seed oil extraction factories. Overall, it is estimated that around a third of the Beninese population depends on the cotton sector. The growth rate of GDP is very much influenced by the cotton activity. Over the last ten years or so, more than 40 per cent of the variation in the growth rate of GDP was explained by the variation in the growth rate of the production of cotton. Yet, cotton can hardly be considered as a growth engine for Benin’s economy. After substantial growth from 1980 to the mid-1990s, production did not grow for the next twenty years – it even fell dramatically in the mid-2000s. It is only during the late 2010s that production has been able to overtake its 1996 record level, but data are still provisional.

Of course, the institutional set-up of the sector is of prime importance for its performance and dynamism. From that point of view, the history of cotton in Benin since independence is that of a succession of supposedly deep reforms. Overall, however, they only amounted to a change in the lead actor of the sector. While this actor was the state back in the Marxist–Leninist period of governance, it is close to a single private conglomerate today, a conglomerate that happens to belong to the current president. Except for this, and despite the liberalisation that took place – as in the rest of the economy – after 1990, the organisation of the whole sector has remained pretty much the same, sheltering most actors against the competitive pressures of the market.

Production by farmers is controlled through the allocation of inputs – cotton seeds, fertilisers, and pesticides – that results from coordination mechanisms and bargaining within the Interprofessional Cotton Association (AIC). The production of seed cotton is allocated to the eighteen existing ginneries, again through a process that results from bargaining among the main actors of the sector. The price of inputs and the allocation of credit to farmers are set within the AIC and subsidised by the government. The farmgate price is also largely decided by the AIC, even though formally set by the government. It depends only very loosely on international prices – for example, after a substantial increase in 2011, the price paid to producers has practically not changed over the following seven years, despite international prices having increased by more than 50 per cent in local currency.

Variation in the management of the cotton sector over time concerned mostly the provision of inputs upstream, and the ginning of cotton and its commercialisation downstream. The management structure has thus gone through various transformations during the last twenty-five years. A state company, Société Nationale pour la Promotion Agricole (SONAPRA), was initially responsible for all the preceding activities. Then some liberalisation took place in the early 1990s for the provision of inputs, an activity in which a businessman, who would much later become President of Benin, Patrice Talon, soon acquired a dominant position. The ginning market was opened a bit later, with eight new ginneries being created, several of them controlled again by Talon’s group. Still later, the coordination of the whole sector, initially under the responsibility of SONAPRA, was privatised and entrusted to the AIC. In the process, Talon was able to strengthen his grip on the whole sector by controlling the ten ginneries initially operated by SONAPRA. Partly because of the disorganisation created by this succession of liberalisation reforms, production fell dramatically. The AIC was then dismantled in the early 2010s and the management of the whole sector was re-nationalised. The state-owned company SONAPRA then regained its initial coordination and central planning role. However, a few years later, and soon after Talon’s election to the presidency in the circumstances that were discussed earlier, the management of the sector was re-privatised and the AIC was re-activated.

Today the whole sector is mostly private, even though the amount of public subsidies on inputs and several key decisions of the AIC – the level of producer prices in particular – must be formally approved by the government. However, the sector is clearly dominated by a single private actor, who controls the supply of inputs, the collection of cotton seeds, the operation of most ginneries, and hence the commercialisation of cotton. The public monopoly system of the 1980s has thus been transformed into a market structure close to a private monopoly, and one that today has established strong links with the executive.

This chaotic evolution of the cotton sector and its present structure would not be a problem if they had little impact on production, its rate of growth, and its present efficiency. This is not the case, however. As emphasised in Chapters 2 and 5, total production practically stagnated during the two decades from the mid-1990s to 2016. It is true that international prices have not always been favourable and adverse climatic conditions have sometimes affected production. There is no doubt, nevertheless, that the privatisation process and the disorganisation it created had a very negative impact on the whole sector during the 2000s. The disastrous harvests of 2005 and 2010, partly due to these disorders, tragically attest to the inept approach to the sector’s reform. If the re-nationalisation of 2012 was followed by a recovery of the whole sector, it is hard to say whether this was due to public management per se or simply to the stabilisation of the organisational structure of the whole sector.

After bad results in 2015, production surged in 2016, the year during which private management through the AIC was re-activated, so much so that it again reached the levels observed 20 years before. It then reached a record level in 2017. The question arises as to whether this was the result of favourable conditions for cotton production or better terms granted to producers with the return to private-sector management – and this despite the monopolistic structure of the sector.

Comparison with neighbouring cotton producers is instructive here. The two lead producers in West Africa are Mali and Burkina Faso. The general organisation of the cotton sector in these two countries is comparable to that observed in Benin, except for the public/private nature of the main operators: a national company is in command of the whole sector (except production) in Mali, whereas in Burkina Faso there is an AIC type of structure, with three semi-private companies in charge of input provision, ginneries, and commercialisation in three distinct geographical zones. Even producer prices are comparable across countries. The instability observed in Benin in the management structure of the whole sector has been responsible for production there trailing the two other countries from 1995 and 2015. The gap went from zero to 42 per cent during that period! It has only slightly decreased over the last years, since it was still as high as 35 per cent in 2017. Yet, the rate of decline of the gap is now accelerating, but whether this is attributable to the stabilisation of the management structure in Benin and thus to growth recovery, or to the private nature of management, is difficult to say at this stage.

As stressed by Véronique Thériault in her discussion of Chapter 5, cross-country evidence on the effect of the management structure of the cotton sector, especially its public/private nature, is rather inconclusive. Coordination, through the provision of inputs and credits to producers, works better in publicly managed systems, whereas competition offers higher output prices to producers in private systems. This distinction is not really relevant among West African countries, however, since competition barely exists in the only country with a privatised structure; that is, Benin. It would be tempting to say that the main difference between a public and a private monopoly stems from different objective functions of the operators, and from varying levels of efficiency in management operations. In the case of Benin, objectives might well converge in maximising the growth of production for a while. However, it may take time before the efficiency advantage of private operators manifests itself. When it does, moreover, it will most likely benefit private rather than public interests.

This last remark raises the issue of the distribution of the rent arising in cotton exports. It turns out that available statistical sources do not permit us to estimate how much of the value-added in the cotton sector is going to the various operators in the sector, including farmers and the state through taxes. The uncompetitive organisation of the sector, from the allocation of inputs and credits to farmers to the allocation of cotton seeds to ginneries, which are the actual exporters, suggests that the rent – when there is indeed a rent thanks to sufficiently high foreign prices – is shared among the various types of operators. For instance, farmers would be constantly trading off cotton against other crops if there was no rent attached to the production of cotton. This is known to have occurred in some cases, but is not systematic. The main point, however, is that no estimate is available about the operations of the company that provides inputs and credit or about the operations of ginneries and exporters. Despite that opacity, the fact that producer prices have remained practically constant over the last eight years even though there was a 50 per cent increase in international prices suggests a rather unequal allocation of the rent.

Several lessons may be drawn from the evolution of the management structure of cotton in Benin. First, there is the effect of institutional instability on the growth of a sector that is of primary importance for the whole economy: twenty years of stagnation in a sector that represents more than 10 per cent of GDP amounts to a non-negligible loss of overall growth. The second lesson is that the institutional instability of the sector was very much caused by political economy factors. The rise of the ‘king of cotton’, as Talon is often nicknamed, coincided with an intensification of rivalrous influences of public decision makers regarding the organisational structure of the whole sector. This rivalry was actually responsible for the chaotic trend in production during that period. The third lesson is that the way the reform process was handled led to the capture of a key sector of the economy by practically a single actor. Such a situation is essentially unsound, even though it may have brought stability and ensuing expansion of production. Although it may contribute to economic progress overall, this will be the case only as long as private and public objectives are aligned. This may not last.

3 State Capacity and Tax Effort in Benin

As emphasised in the recent economic literature on institutions – see, for instance, Besley and Persson (Reference Besley and Persson2009) – state capacity is a key determinant of development. A major difficulty, however, is that few indicators are available that satisfactorily measure this institutional feature, except for advanced countries.Footnote ⁵ The tax/GDP index is often used as a convenient proxy of state capacity. It has the advantage of being simple and reflecting two dimensions of government action: the administrative capacity of the government to collect taxes and its financial capacity to deliver public services. Various tax-based indicators are available in the literature – see, for instance, the review by Rogers and Weller (Reference Rogers and Weller2014). In Chapter 6, Emilie Caldeira and Grégoire Rota-Graziosi have chosen non-resource tax/GDP to account for the fact that taxing the export of natural resources in developing countries does not require as much administrative capacity as raising VAT, import duties, or income tax.

Using a stochastic frontier approach estimated on forty-two sub-Saharan countries between 1961 and 2015, Caldeira and Rota-Graziosi measure the non-resource ‘tax effort’ as the ratio of the actual non-resource tax/GDP ratio to the maximum that should be attainable at the frontier. Of course, this frontier depends upon the specificity of national economies and moves over time as they grow and their structure changes. At the end of the period the tax effort of Benin is 68 per cent of the frontier, whereas the tax effort of countries like Rwanda, Senegal, or Malawi is close to 75 per cent. Togo, Benin’s western neighbour, even reached 78 per cent in 2015. With a non-resource tax/GDP ratio around 13 per cent at that time, this means that Benin could increase its tax revenues by 1.9 per cent of GDP if it had the same capacity as Togo, and three times that amount if it were to approach the frontier. It would then get close to the 20 per cent objective set by the WAEMU.

This rough proxy of state capacity is an interesting diagnostic tool that shows how much progress can be made in a country on the tax policy and the tax collection front. At the same time, the discussant of the chapter, Nicaise Médé, is right in stressing that the average tax rate of an economy reflects not only state capacity but also policy choices, based on the premise that lower tax rates provide powerful incentives for work and investment. This may be true, but lowering the overall rate of taxation in an economy also lowers the capacity of the government to finance investments that could accelerate growth and more than offset the distortive effects of the tax. This is precisely why the tax/GDP ratio is indicative of state capacity.

The analysis developed in Chapter 6 on taxation goes further in trying to identify some of the factors that explain why Benin is farther away from the frontier than neighbouring Togo. A first possible factor may be tax expenditures. It seems the case, in particular, that Benin grants more favourable tax conditions to foreign companies in terms of both the income tax and VAT. A second factor is the structure of taxation and the tax base. It happens that both countries take advantage of the heavy protectionism of Nigeria, their giant neighbour. This is possible because their overall taxation rate of imports – that is, duties plus VAT – is lower. Goods are thus imported by Benin and Togo that are re-exported – or, in frequent cases, smuggled – across the porous Nigerian border. These re-exported goods generally benefit from low duties when entering the country but are subject to VAT. As Benin and Togo belong to the WAEMU, they apply the common tariff on imports. They also have comparable VAT rates. They thus can compete only by lowering the reported, or taxable, value of imported goods, second-hand cars for instance. Because trade is relatively more important in Benin, this may explain why tax revenues are relatively smaller than in Togo relative to GDP. Whether through tax expenditures or because of the tax status of re-exports, the difference in tax/GDP ratios between Benin and Togo might reflect strategic choices more than differences in state capacity.

There may also be institutional factors that are directly responsible for the less efficient tax collection system in Benin than in Togo. Caldeira and Rota-Graziosi mention two of them. The first is that Togo has recently (2014) reorganised the tax collection system into a Semi-Autonomous Revenue Authority (SARA), a structure that is somewhat independent from the rest of the public sector and is essentially responsible for the collection of all taxes and customs duties. Such a structure offers the advantage of not being constrained by public employment management rules, thus allowing for original incentive schemes and some clear synergy between the collection of taxes and customs duties. But it also offers some disadvantages, in particular a possible conflict between tax collectors and tax policy makers. According to Fjeldstad (Reference Fjeldstad2007), who closely followed these reforms in several sub-Saharan countries, the advantage of the SARAs would seem to vanish after a few years, mostly because most actors progressively learn how to game the new system.

In his comments, Nicaise Médé notes the strong propensity of the present government to create semi-autonomous agencies along the model of SARAs for the production or management of several public services, with the purpose of delivering services more efficiently – because they are less constrained than state administrative units typically are. That the same model was not applied to tax collection is a political choice that reflects a certain degree of faith in the standard incentivising and auditing instruments available in the tax administration. Time will tell whether progress in tax collection occurs significantly faster in Togo than in Benin.

Thanks to better wage incentives and monitoring facilities, agencies like SARAs are more efficient in their fight against corruption than fully centralised tax authorities as we usually know them. Nowadays, variation in the perception of corruption between Benin and Togo is minor (see Transparency International, 2019). It will be interesting to see whether this changes in the future because of a different management structure of tax collection and tax policy making.

The last factor that could explain the tax/GDP advantage of Togo over Benin is the size of the tax collection and policy administrative unit. Rather surprisingly, while the Direction Générale des Impôts counts roughly 1,500 employees, or a little more, in the former country, it relies on only 500 officials in the latter. Here too, there are probably trade-offs, yet such a large gap in the personnel of the tax management system is surprising and most likely reflects severe understaffing in the case of Benin.Footnote ⁶

In summary, what lessons can be drawn from that comparative analysis of the tax effort, considered as a proxy of state capacity, between Benin and other sub-Saharan countries, and Togo in particular? First, the importance of tax revenues for the development of Benin need not be underestimated. Benin, like many other sub-Saharan African countries, is over-dependent on foreign funds for the preservation of its level of investment in physical as well as human capital (see Chapter 2). Its external debt has increased substantially faster than GDP over the last decade. That evolution, and the uncertainty about the level of future foreign flows, can only be neutralised by higher tax effort if investment in public infrastructure is to be maintained, if not increased. Yet, the tax/GDP ratio has stopped increasing over the last ten years. It has even fallen since 2015. Improving tax revenues, both by using existing policy levers and building up state capacity, is thus essential.

Second, the general organisation of the tax collection system is a major obstacle to higher tax revenues. It is difficult to identify precisely how much of the present level of tax effort is constrained by voluntary tax policies and how much is structural and due to inefficient organisation. That countries that have adopted a SARA system of tax collection have been able to make progress on the tax revenue front, at least temporarily, shows that the institutional structure of the sector matters. In a country where the perception of corruption is high by regional standards, it is also difficult to believe that this factor does not affect public revenues negatively. Finally, although we lack precise criteria relating tax revenues to the size and organisation of the tax authority, it is equally hard to believe that a country with half the number of staff devoted to tax collection as are devoted to it in a neighbouring country can be as efficient, especially when the size of the public sector is comparable. Restructuring the public sector to reinforce the tax apparatus may have a cost in the short run, but it should permit faster progress in state capacity in the longer run.

One last remark is in order. It refers to the determinants of the frontier used to evaluate the maximum tax effort likely to be supplied by a country. It turns out that a key determinant is the level of GDP per capita. If the analysis shows that Benin does not do as well as some other countries at a comparable level of income, it should be kept in mind that, in all these countries, state capacity is actually constrained by the availability of resources. In Benin, as in Togo or in Rwanda, the tax/GDP ratio is low not only because it would be possible to do better with existing resources, which the analysis actually shows, but more fundamentally because resources – equipment, skills, complementary public agencies – are limited. That state capacity is as much the consequence as the cause of a low level of development should not be ignored when conducting an institutional diagnostic.

4 Land Rights

Chapter 7 by Philippe Lavigne Delville provides a detailed and comprehensive picture of the efforts of the Government of Benin to reform land tenure rights in the country’s urban and rural settings. The approach belongs to the field of social anthropology of public policy (of which legal anthropology is a key component), as the discussion centres around the various pillars of the legal framework and the positioning of various interest groups assessed from qualitative interview material. The approach is also dynamic in the sense that it carefully reports the back-and-forth moves of the law maker, giving the overall impression of continuous wavering under the influence of these groups.

Since the account provided in Chapter 7 is very detailed, we offer a summary based on that account that sketches the main stages in the evolution of land legislation in Benin. The reader who went through Chapter 7 can skip that first part of our discussion and go directly to the next two parts. There we first attempt to extract the most meaningful lessons that emerge from the experience of Benin in matters of land regulation. Thereafter we provide additional insights that can be gleaned from recent economic studies that use the methodology of randomised control trials (RCTs).

5 Benin’s Informal Trading with Nigeria

Cross-border trade with Nigeria, Benin’s large and oil-rich neighbour, has developed into an important segment of Benin’s economy. As developed in Chapter 8 by Stephen Golub and Amahdou Aly Mbaye, it has two facets: (1) Benin has a huge unofficial re-export activity to Nigeria; and (2) it fraudulently imports a sizeable share of key imports from Nigeria. A common characteristic of cross-border trade with Nigeria is its illegal nature. Goods re-exported to Nigeria face stiff tariffs there, or are banned from import. They are imported into Benin in a legal way. However, the destination of these goods that is declared at customs is that of neighbouring land-locked countries, for which import taxes and custom duties are low, or else the domestic market. Once customs have been cleared, the goods are diverted to Nigeria via a network of informal intermediaries who organise their transportation and smuggle them over the border. Similarly, the large flow of goods imported by Benin from Nigeria, like petroleum products, which are heavily subsidised there, or other consumer, intermediate, or capital goods, are smuggled into the country, thus escaping tariff duties, and sold on the domestic market through informal channels similar to those operating in the re-export sector. It is the illegality of this trade that implies its informality. Because this illegal trade is carried out on a large scale, bribery and corruption are pervasive at each stage of the process.

Golub and Mbaye provide a thorough and detailed analysis of the nature, the extent, and the institutional and logistical organisation of this informal cross-border trade (ICBT), as well as an assessment of its implications for Benin’s development strategy. They report that, at peak times of the trade, Benin’s estimated gross value of imports of products typically destined to be re-exported to Nigeria has represented more than twenty-five times the gross value of Benin’s official exports to Nigeria. Still more strikingly, the authors estimate the contribution of ICBT to Benin’s GDP at about 20 per cent, including customs and other tax revenues (6 per cent of GDP). The largest part of this total contribution comes from the unofficial re-export activity (18 per cent of GDP). Direct data being unavailable, their calculations are based on a series of apparently reasonable assumptions. A tentative approach sketched out in Chapter 2 assesses the implications of this estimate for employment in the sectors most likely affected by ICBT. Based on respective productivity levels, it suggests that the 20 per cent estimate for the effect of ICBT on GDP stands at the upper level of a plausible range. Whatever the precise estimates, one cannot avoid the conclusion that ICBT is a major sector of activity and provider of informal jobs in Benin.

Nigeria’s heavy protectionist import substitution policy for cars, rice, poultry, and textiles, as well as the low efficiency of its ports and the porosity of its land borders, have set the stage and provided the incentives for the deployment of a profitable network of unofficial re-export trade on the Beninese side of the border. Nigeria’s subsidy policy for the price of fuel has had the same effect for the largest part of the import side of ICBT. In effect, it is Nigeria’s oil rent that feeds ICBT: Benin’s re-exports are driven by Nigerian demand, which is heavily dependent on oil revenues. On the other hand, Benin’s cross-border imports are partly driven by the share of the oil rent that Nigeria decides to allocate to the subsidising of its domestic oil prices. Thus, Benin shares the oil rent with Nigeria, including through low gas prices.

The importance of ICBT is the result of a two-way game, played out between two unequal partners, Benin and Nigeria. Each country could stop ICBT by deciding to enforce strict border control: Nigeria on goods smuggled from Benin and Nigeria on goods smuggled from Nigeria. Yet, neither does so, either because controlling their lengthy border would be too costly or because decisive actors find that their interests are served in this ICBT equilibrium.

Given the unequal size of the two players, it can be said that Benin, the smaller player, has decided to adopt the follower strategy in this game. Starting soon after the first oil shock in the 1970s, it embarked on exploiting the opportunities offered by Nigeria’s domestic policies. Benin has also developed its institutions in such a way that they can accommodate its ‘entrepôt state’ strategy. Re-export activities benefit from specific tax rates and customs procedures, from large public and private infrastructure, and from easy access to import financing. All of this would be consistent with a development project focused on the transformation of the country into a regional trading hub centred on the Cotonou port. However, the ultimate target of the strategy is Nigeria. And it is an open secret that goods imported into Benin in a fully official and legal way will be de facto diverted to Nigeria in fraudulent ways. Benin’s strategy is thus clearly not only to tolerate, but also to encourage, this informal and fraudulent re-export trade. Things are different on the import side of the trade, however. There, a Dutch disease phenomenon is at work. Importing Nigerian gas and other products duty free may be detrimental to Benin’s development, by crowding out some domestic activity. In his comments on the chapter, John Igué mentions formal gas distribution, cement factories, and breweries as sectors that have been partly driven out of business in Benin. It must be also mentioned that the tax loss on account of the informality of the trade based on imports from Nigeria and the ensuing loss suffered by outcompeted Beninese formal activities are to be subtracted from the revenue gain generated by the re-export activity.

In the aggregate, Benin is clearly a net gainer in this game, at least in the short and medium run. Buying goods and reselling them at a higher price leave a net profit even when taking into account the operational cost of handling those goods and smuggling them across the border. Because these operations are labour intensive, they benefit a large number of people and undoubtedly contribute to reducing poverty. At the same time, because they also require financial facilities, they benefit the business elite too. Owing to the essentially informal nature of that activity, however, it is difficult to guess how much is accruing to each side. In the longer run, the Dutch disease effects of illegal imports may have to be taken into account.

On the Nigerian side, ICBT benefits consumers, who get goods at lower prices, at the cost of less revenue for the government and a crowding-out of domestic production. Firms, on the other hand, may benefit from some extension of their market to Beninese customers. It is not clear that the net gain is positive, but illegal importers are probably able to convince the state to keep its eyes shut. Moreover, the respective size of the two economies is such that the impact of Benin’s re-exports on Nigeria is probably very small.

An important drawback for Benin is the vulnerability ICBT creates to changes in the economic conditions of Nigeria, since a decrease in the oil rent and the accompanying depreciation of the currency directly reduce Nigerian demand for Benin’s re-exports. Igué documents the impact that the current oil-based crisis in Nigeria has on Benin. The long-term sustainability of the strategy is also questionable. Nigeria could quickly reverse its distortionary protectionist policies or put an end to the highly profitable illegal cross-border trade through better control of its border. Such a scenario is, however, downplayed by Golub and Mbaye, on the grounds that earlier announcements by both Benin and Nigeria that they will combat smuggling have never had lasting effects on the trade. This suggests a low credibility of repressive policies. It also reflects a high reactiveness of the informal trade network, the strength of which derives from close ethnic and cultural ties between Beninese and Nigerian participants. In addition, powerful interest groups in Nigeria have strong incentives to maintain the status quo. This could nevertheless change in the more distant future if the longer-term inefficiencies of these import protection and price subsidy policies were finally recognised by Nigerian authorities and acted upon. In other words, the oil rent Benin extracts from Nigeria should be considered as a non-renewable resource. Hence, preparations for its ultimate exhaustion should be seriously considered.Footnote ⁸ Besides the likely crowding-out of domestic activities in tradeable sectors, ICBT may bias trade flows and deprive Benin of its comparative advantages at a regional level. More subtly, but as importantly, the informality implied by ICBT nurtures tax evasion in the rest of the economy, and undermines any reform designed to incite firms to become formal. Corruption can also be identified as a major cost: it is an indispensable attribute of ICBT and it involves civil servants and government officials, as well as big players with contacts at high political levels and who are active in other sectors of the economy. The ensuing erosion of norms and neglect of the rule of law have contagious effects across the whole economy, its institutions, its business climate, and its attractiveness to foreign investors.

For Golub and Mbaye, the way forward for Benin is to progressively move away from smuggling and towards formal trade. Benin could aim to become a competitive, efficient regional centre for legal trade and services to its hinterland countries, as well as to Nigeria. Once Benin has definitely opted to privilege formal trade above smuggling, political relationships with Nigeria might become more serene and new avenues of cooperation could then be explored. To achieve this transition, Benin needs to adopt an ambitious agenda to upgrade the quality of its port logistics and communication infrastructure, to significantly enhance accountability and transparency within customs and the civil service, and to improve its business climate. Such a move towards increased formality and a more attractive business environment has an important pre-condition: it requires from the legislative, executive, and judicial spheres a strong and sustained determination to fight corruption and to enforce full respect for Benin’s institutions and the rule of law. These tasks currently present a huge challenge. Full control of the border with Nigeria is practically impossible and the main ICBT actors would have too much to lose for them not to exert heavy pressure on the executive to prevent the adoption of such a policy.

Yet, the main obstacle to ending ICBT with Nigeria on the Beninese side lies in the fact that re-exports to Nigeria are a net and practically riskless gain, as long as the difference between tariffs in Nigeria and in Benin remains large enough. It has drawbacks in the sense that, being necessarily informal, it cannot be taxed and thus used by the state for development purposes. It also has some negative spill-over effects on the rest of the economy. Alternatives are riskier, however. They require investments with uncertain return and long gestation delays: a bad substitute for a quick, riskless gain.

1 Lack of Attention to General Public Goods

A first negative consequence of the political system at work in Benin is directly associated with widespread clientelistic practices. Particularised privileges and the prioritising of public goods targeted at specific groups mean that general public goods, such as education, nationwide communication, and power infrastructure, as well as key administrative departments, have not received the attention that they deserve. It is true that efforts have recently been made to fill some of these gaps, yet they still do not reflect sufficient awareness of the critical role these factors play in sustained growth and development. Thus, while the construction of roads is essentially financed by external aid, the expansion of education has largely been conceived in quantitative terms, implying that its quality has probably even deteriorated. This is worrisome because, since it is deprived of mineral and non-mineral resources, Benin’s long-term growth path will have to rest on the emergence and rapid development of sectors that create substantial added value, whether in the processing of agricultural goods, in the production of manufactured goods, or in services. On the other hand, the understaffing of the tax collection administration has not been remedied and, combined with the low efficiency of its mode of operation, this probably explains the disappointing performance of Benin in matters of tax collection. The same holds true of the administration of justice: judicial and legal officers are in very short supply and, by causing stresses and delays in the system, this shortage contributes to increasing the mistrust of the population.

2 Allocative Inefficiencies

A second negative upshot of Benin’s political economy system lies in significant distortions in the allocation of resources. This is especially evident in the case of the two sectors that dominate the national economy: the cotton sector and illegal trading with Nigeria. In the former, distortions are the result of a deliberate suppression of competition, and the gradual takeover of the whole sector by a single private actor controlling the various stages of the value chain, from input supply to marketing through processing (ginneries). Unregulated private monopolies are rarely economically efficient, and, in any case, they have unfair distributional consequences.Footnote ¹⁰ This evolution has taken place through various successive transformations of the sector’s organisational structure during the last twenty-five years. Such transformations were chaotic and largely reflected a cut-throat struggle for the control of this vital sector, rather than a continuous search and experimentation aimed at greater efficiency. So far, the outcome has proven disastrous for the country. Organisational instability over those years made production lag behind competitors and growth be under potential.

Regarding the second key sector of the Beninese economy, the ICBT with Nigeria, there are potential distortions arising from both the illegal import side and the re-export side of this trade. For the former, illegal imports thrive on artificial price differences – in fact, the equivalent of the WAEMU import duty rates to which Benin is committed and which are foregone. There is also the possibility of a crowding-out of private and public resources that could have been put to better use in the agricultural value chain or the manufacturing sector. As far as re-export activities are concerned, the price difference consists of the difference between prevailing duty rates in Nigeria and Benin (the WAEMU common tariff). The numerous advantages enjoyed by re-export activities (specific tax rates and customs procedures, large public and private infrastructures, and easy access to import financing) are likely to create further distortions, with the consequence that trade flows are biased away from the pattern that would result from the official protection regime. The same advantages granted to, or invested in, other activities could have produced a more sustainable and possibly faster regime of growth.

All this being said, there cannot be any doubt that, in the aggregate, Benin benefits from the ICBT: it buys from abroad at 100 and resells at 120! But three issues arise: (1) this is not sustainable, as Nigeria at any moment may align its tariffs with those of the WAEMU; (2) even though it may lift numerous workers out of poverty, the gain may be badly distributed, accruing mostly to a few tycoons; and (3) illegal trade and informality spill over to other sectors. In fact, Benin is exactly in the situation of the resource-rich countries exporting minerals, except for the fact that the rent generated by this activity is essentially informal, this also being true of the jobs that it creates. The alternative development strategy is uncertain, however, and it would be difficult to do without this rent. The main issue here is that, as in resource-rich countries, the rent should be used to prepare for the future, which is not the case.

3 Lopsided Spatial Development

If faction leaders were only Big Men benevolently representing the interests of their region or ethnic group, the balanced rotation of high political positions (presidency, members of the executive and the parliament) between various regions and ethnicities in Benin could create a situation in which inter-regional inequalities are moderated. As seen earlier, however, political factions tend to be articulated around the business interests of their leaders and their clique. Since business opportunities are concentrated in essentially two regions that benefit from the presence of two growth poles, in the form of the two biggest commercial cities of the country (Cotonou and Porto Nuovo), it is not surprising that economic growth, inequality, and poverty reduction tend to primarily occur in a few privileged regions. The other regions – remote regions in particular – are bypassed or do not receive the special efforts that they require. In particular, they suffer from an acute shortage of teachers and medical personnel while richer areas have a surplus of them. The result is lopsided spatial development, economic inequality, and concentration of poverty in the neglected areas of the country. Alternative strategies might yield more balanced development.

4 Vulnerability to External Shocks

A fourth negative effect of the country’s political system is vulnerability to external shocks, and the consequent unpredictability of the environment on which the sustainable growth of its key sectors depends. For the cotton sector, unpredictability takes the form of both natural hazards at a time of rapid climatic change, and the quick development of substitute products (synthetic fibres). More generally, the economy remains heavily dependent on the export of a few raw agricultural products (among which cotton stands foremost), which are highly vulnerable to swings in international commodity prices. As far as cross-border trade with Nigeria is concerned, it is obviously at the mercy of the giant neighbour’s policies, since it is its oil rent and the way its government decides to use it that determine the scope of the gains achievable by Benin. While Benin’s re-exports respond to Nigerian demand, which is heavily dependent on oil revenues, cross-border imports are driven by the share of the oil rent that Nigeria decides to allocate to the subsidising of its domestic oil prices and the protection it wants to provide to its manufacturing industry. Alternatively, given the peg of Benin’s currency – the CFA Franc – to the Euro, re-exports also depend on the fluctuations of Nigeria’s own currency – the Naira – with respect to the Euro or hard currencies in general.

5 Vulnerability to Political Changes and Lack of Structural Transformation

To these strictly external sources of unpredictability, one must add a source that is only partly external to economic agents: namely, political instability in a context where rulers tend to follow a winner-takes-all approach. The intense struggle for state power and the attached economic privileges implies that long-term development strategies are hard to devise and enforce. Those who suffer are not only ordinary economic agents who need the support of such strategies, but also the big business leaders who fear the consequences of abrupt changes of personnel at the highest levels of state power. In the case of the Big Men themselves, this uncertainty typically encourages the adoption of short-term behaviour that involves the quick accumulation of wealth at the expense of long-term profitability. Lack of structural transformation of the Beninese economy, which is the expected consequence of this short-sightedness, is acutely reflected in the following: the significant decrease in the share of agriculture in domestic value-added has not been associated with a corresponding increase in the share of tradeable manufactured goods, but with a rapid increase in the share of non-tradeable services, which often act as a last-resort employer. Note that smuggling in and out of Nigeria is a ‘tradeable service’, but the snag is that it may be unsustainable and it generates negative externalities.

6 Poor Business Environment and Perverse ‘Morale Effects’

We must also consider all the adverse consequences of a general climate of weak governance involving huge elite capture and corruption. The first aspect is the poor business environment it creates, with all the attendant implications for investment incentives. In particular, weak governance and corruption deter foreign investment,Footnote ¹¹ thus causing a lack of capital and low productivity growth. Combined with stagnant yields in agriculture, low productivity growth in the manufacturing and tertiary sectors makes for slow progress in per capita income. A second aspect is the ‘morale effect’: when rent capture is blatant and corruption is widespread and involves civil servants and government officials, the citizens of the country have low trust in their elites and in national institutions. The citizens then try to escape the grip of the elites and, if this is impossible, they nurture a feeling of anger and powerlessness that may one day be vented in open and violent demonstrations. Lack of trust is especially evident in the case of judicial and tax collection institutions. Regarding the former, courts are the place where executive authorities and their cronies intervene to distort settlements in their own favour, using corrupt magistrates to obtain the verdict they want. As for the latter, they are a privileged source of discriminatory treatment and undue privileges that directly translate into economic inequality: rich people are easily exempted from paying the taxes rightfully due, whereas ordinary people like farmers and small traders are illegally taxed by unscrupulous officials whenever the opportunity arises (like when they transport goods to the market). These illegal taxes are imposed in spite of the fact that special notices displayed at local police offices explicitly forbid them. Finally, a third aspect is the fragmentation of loyalties and ethno-regional divisiveness that elite capture and corruption encourage when they obviously promote particular, faction-based interests.

Note that in the illegal cross-border trade with Nigeria, bribing and corruption are pervasive at each stage of the process, and this is especially noxious because the trade is carried out on a large scale. Moreover, this sector of activity encourages a tax evasion habit, which is the direct result of its outright illegality, and its actors are therefore inclined to resist and undermine any attempt to formalise their operations.

7 Chronic Aid Dependence

Turning now to the seventh effect, the approach to statehood in Benin means that two options are precluded: (1) state capitalism or socialism whereby state resources are mobilised in a big way to meet the challenges of modernisation and development; and (2) a (competitive) market-based strategy involving the taming of the state so that the dynamism inherent in private entrepreneurship and risk-taking can be unleashed. When none of these options is available and elite capture of state power dominates, a third option becomes very attractive because it helps absorb and conceal the effects of the ensuing inefficiencies: dependence on foreign aid. Benin has no doubt entered into such dependence, on external financial flows and official development assistance in particular. A disturbing sign of excessive external dependence is the growth of external debt as a percentage of GDP after the major debt write-off that took place in the early 2000s. Unfortunately, the prospects of the Beninese economy as already highlighted do not hold out the promise of a foreseeable change in this situation. Strong dependence on external financing seems to be accepted as an unavoidable consequence of maintaining the prevailing political system.

Relying systematically and massively on foreign support may be costly because the consequent loss of independence and autonomy may mean that the donor’s priorities take precedence over the national ones. A vivid illustration of this possibility is provided by the three successive Structural Adjustment Programmes (SAPs) implemented between 1989 and 1999. Sponsored by the International Monetary Fund and the World Bank, these programmes pursued valuable objectives, yet at the cost of severe austerity measures, some of which have had adverse effects on long-term economic development. In particular, the education and health sectors were hit by the fiscal restraint of adjustment, and the need for training and upgrading of the staff of government departments was largely ignored by the three SAPs. Especially hurtful was the total discontinuation of teacher training schools, which caused a severe shortage of teachers in many parts of the country, particularly in the poor north where outsized classes and substitution of poorly trained teachers for the missing qualified personnel entailed a substantial fall in the quality of basic education.

8 Confusing and Changing Laws and Policies

When state power is unstable, in the sense that the current holders of high offices in the executive, legislative, judiciary, and administrative spheres are uncertain about the duration of their mandate, they tend to be vulnerable to the pressures of various groups on whose cooperation they rely. This creates fertile ground for policies and laws that betray a clientelistic approach to the resolution of national problems. However, in the presence of supporting groups that are in conflict on a particular issue, a tempting strategy for the political elite consists of trying to please all or most of them at the same time. This has the frequent effect of producing policies and laws that are inconsistent and so complex as to create confusion, unintelligibility, and unenforceability. Moreover, a direct effect of changes of personnel at the highest levels of the state system is that policies and laws are often rescinded or amended over successive periods of time, with the same consequence of creating confusion and unpredictability. Land laws offer a striking illustration of this predicament. To add further complexity, and as seen earlier, they are also the outcomes of fierce struggles among rival administrative entities that are eager to appropriate to themselves the various gains and advantages of managing land issues.