Wednesday, July 28, 2010
Togo’s economic freedom
Score is 47.1, making its economy the 161st freest in the 2010 Index. Its score is 1.5 points lower than last year, reflecting notable losses in trade freedom, monetary freedom, and investment freedom. Togo is ranked 39th out of 46 countries in the Sub-Saharan Africa region, and its overall score is well below the world and regional averages.
The Togolese government has undertaken a series of economic reforms in recent years, restructuring key sectors including banking, electricity, and transportation. The corporate tax rate, which had been one of the region’s highest, was reduced to 33 percent in 2008.
Togo’s competitiveness has nonetheless continued to suffer from a poor business environment and an undeveloped financial sector, both of which significantly handicap private-sector development. The country still depends to a large extent on foreign aid. Government spending is moderate, but improved public administration and privatization would stimulate broad-based economic growth. Foreign direct investment is allowed only in certain sectors, and regulatory and judicial systems lack transparency and are vulnerable to corruption and political interference.
Background Back to the top
In 2005, the military appointed Faure Gnassingbé to serve as president following the death of his father. Condemnation and sanctions by the Economic Community of West African States and the African Union, along with pressure from the international community, led Gnassingbé to step down. He won the subsequent 2005 election, which was widely viewed as flawed. The resulting political turmoil ended with legislative elections in 2007 that most observers viewed as free and fair. The next presidential election is scheduled for early 2010. Agriculture accounted for over 40 percent of GDP in 2006, and much of the population is engaged in subsistence agriculture. Principal exports include cement, cocoa, cotton, and phosphates. Services are also important, especially re-exports from the Lomé port facility to landlocked states in the region.
Business Freedom36.8 Back to the top
The overall freedom to conduct a business is seriously limited under Togo’s regulatory environment. Starting a business takes an average of 75 days, compared to the world average of 35 days. Obtaining a business license takes longer than the world average of 218 days, and costs are high.
Trade Freedom62.8 Back to the top
Togo’s weighted average tariff rate was 13.6 percent in 2008. Some import restrictions, import taxes and fees, import permit requirements, export-promotion programs, inadequate infrastructure, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Togo’s trade freedom score to account for non-tariff barriers.
Fiscal Freedom56.2 Back to the top
Togo has a high income tax rate and a relatively high corporate tax rate. The top income tax rate is 55 percent, and the top corporate tax rate is 33 percent, down from 37 percent as of January 1, 2009. Other taxes include a value-added tax (VAT), a property tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 16.4 percent. The government has scaled back tax exemptions to broaden the tax base.
Government Spending86.0 Back to the top
Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 21.6 percent of GDP. Togo relies heavily on donor aid, much of which is contingent on improvements in public management and privatization.
Monetary Freedom74.5 Back to the top
Inflation has been relatively high, averaging 6.0 percent between 2006 and 2008, peaking at 15.8 percent in August 2008, and dropping sharply in 2009. The government controls the prices of petroleum products and influences prices through regulation and state-owned enterprises and utilities. Ten points were deducted from Togo’s monetary freedom score to account for policies that distort domestic prices.
Investment Freedom25.0 Back to the top
Investment is permitted only in certain sectors and is screened on a case-by-case basis. Among other conditions for approval, at least 60 percent of the payroll must go to Togolese citizens. The lack of transparency and predictability in the regulatory and judicial systems inhibits investment. Residents and non-residents may hold foreign exchange accounts. Payments and transfers to certain countries are subject to authorization and quantitative limits in some cases. Capital transactions are subject to some controls or government approval. Purchases of real estate by non-residents for non-business purposes are subject to controls.
Financial Freedom30.0 Back to the top
The banking system is small and subject to strong government influence, with little foreign participation and weak product diversification. The system suffers from a lack of solvency and liquidity, and management is inadequate in major public financial companies and many banks. A substantial number of loans issued to state-controlled companies (more than 30 percent of total bank credits) are considered to be non-performing. The Central Bank of West African States governs Togo’s financial institutions. Four of the eight commercial banks are state-controlled. Privatization of financial institutions has begun, but only one of the four state-owned banks has attracted private-sector interest.
Property Rights30.0 Back to the top
The judicial system is subject to strong influence from the executive and does not provide independent protection of private property. Contracts are difficult to enforce. Ownership of physical property is frequently disputed because of poorly defined inheritance laws. Real and chattel property cases are further complicated by judicial non-transparency, which often favors domestic entities over foreign investors. Togo has a large informal market in pirated optical media, computer software, video and cassette recordings, and counterfeit beauty products.
Freedom From Corruption27.0 Back to the top
Corruption is perceived as widespread. Togo ranks 121st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008, a significant improvement over 2007. The executive and legislative branches are subject to corruption. Government procurement contracts and dispute settlements are subject to bribery. Bribery of private or government officials, while technically a crime, is generally expected.
Labor Freedom43.3 Back to the top
Togo’s labor regulations are restrictive. The non-salary cost of employing a worker is high, and dismissing an employee is difficult. Regulations on the number of work hours are rigid.