Business as usual in Burundi, until the money runs out
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Burundi’s economy is being squeezed by a multitude of factors stemming from the ongoing political crisis, violence and human rights abuses sparked by President Pierre Nkurunziza’s controversial third term in office. Cuts in foreign aid, falling tax revenues, a drop in key exports and delays to development projects are putting pressure on the government’s ability to pay public sector salaries and help lift its people out of poverty.
“Domestic taxation and foreign aid are on a downward trend at the moment,” Sebastien Marlier of the Economist Intelligence Unit told RFI. “The key factor behind the slowdown in Burundi is the decline in aid - foreign aid accounts for about 50 per cent of the state budget,” he adds.
The World Bank predicts that Burundi’s economy will contract by 2.3 per cent in 2015. In their latest outlook dated 15 October, the World Bank describes how the political crisis is “turning a decade of good economic performance to a macroeconomic collapse”.
Marlier, who previously worked in Burundi’s finance ministry, says the government has struggled to pay public salaries. He cites a sharp fall in revenue from taxation in April and May, adding that “the entire economy came to a standstill in the few months of crisis”.
Belgium has already suspended more than 60 million euros of development aid to Burundi. The European Union is reconsidering 432 million euros of development assistance earmarked for 2014 to 2020. An EU statement on 26th October demanded consultations with Burundi’s government over “failure to respect” human rights, democratic principles and the rule of law.
In a statement seen by RFI, the US Agency for International Development said it planned to spend 45 million dollars in Burundi during 2016, but “no funding will be provided directly to the government of Burundi”.
The Netherlands has also suspended all programmes with the authorities in Burundi, including support to the police and army, although its civil society-led projects continue. The Dutch budget for 2015 is more than 24 million euros, says Sietze Vermeulen, spokesperson for the Foreign Trade and Development Cooperation ministry.
The reduction in government revenue will initially hit development projects. “Most of these projects are financed with external funding so they will really have to focus on the priority spending, which is debt repayments and salaries,” says economist Marlier, pointing out that the government is likely to see salaries for the police and the army as a priority.
Eventually reduced income and cuts in aid could “have an impact on the president’s popularity” says Marlier, referring to improvements in healthcare and education. “This type of expenditure will probably take a hit,” he says, predicting that it could affect trust in Nkurunziza’s ability to provide public services.
Besides cuts in foreign aid, coffee, a key export, has faced difficulties since the onset of the crisis with the displacement of people in rural areas and disruption to transport.
“There is a declining trend in production of coffee and we could see a further hit this year,” Edward George, head of group research, pan-African bank Ecobank, told RFI. “We’ve seen almost a 50 per cent drop in the crop over the last 15 years, because of disruption this season it could be even lower as we go into the next season.”
“Back in 2010, the country exported around 70 million dollars worth, around 60 per cent of total exports,” says the Ecobank specialist. “If you look to last year, that had dropped to 50 million dollars, around a third of exports, so its share is falling and overall export revenue is falling as well.”
“The crisis the country has been going through for the last six months will have affected exports,” says commodities expert George, explaining that the political crisis in Burundi makes it difficult to obtain trade finance. “It may even be that there is coffee available for export, but it cannot get the financing to do it and that’s why we expect there’s probably a lot more smuggling of coffee going on from Burundi.”
Coffee smuggling into neighbouring countries exacerbates the problem for the government because it further reduces export revenues, with smuggled coffee being officially denoted as being produced by other countries.
Furthermore, exports from Burundi have taken a somewhat symbolic hit from the termination of the country’s status as a recipient of the US African Growth and Opportunity Act (AGOA). US President Barack Obama issued a statement on 30 October, saying that the “continuing crackdown on opposition members” would result in Burundi being removed from the US’s special preferential trade scheme.
Burundi exported some 3.3 million dollars of goods to the US in 2014, according to statistics compiled by the AGOA.info website. Despite only 4,000 dollars being eligible under the AGOA agreement, economist Peter Stein of Stein Brothers says that “it demonstrates that the economic and political situation in Burundi is not favourable to further trade with the US”.
A number of infrastructure and development projects face uncertainty due to the deteriorating situation in the country. The World Bank currently has 12 active projects in Burundi with three approved this year, according to their website.
In one progress report this year, the World Bank notes that “due to political uncertainties” they are unable to sign-off on an infrastructure project, the overall risk rating stands at “substantial”. In another project focused on government effectiveness, a recent report outlines progress as “satisfactory” but overall risk “substantial”.
According to a source RFI spoke to, Swedish company SwedeEnergy has “concerns about delays” to its power generation projects in Burundi due to the unrest. The source is keen to point out, however, that the company has yet to suffer any setbacks to their hydropower project using the Kagunuzi river.
A long-term crisis in Burundi could have the potential to disrupt the development of large-scale commercial mining in the country. Burundi Musongati Mining (BMM), which is 85 per cent owned by Kermas Group, plans to build a mine and facility to process 1 million tons of ore a year.
“According to our long term plan for the Burundi project, in 2015-2016 we’re constructing a pilot plant for the project, but in South Africa,” Kreso Raguz of the Kermas Group, told RFI. “Everything is going according to schedule and we’re not delayed”.
“Of course, if the situation stayed the same, during this year and during the next year, then we’d probably face some problems,” says Raguz.
Development of the Musongati nickel mine will require power and transport infrastructure, but Kermas does not currently have any workers at the Musongati site following the completion of the exploration phase. In the company’s seven years in Burundi, Kermas has spent almost 95 million dollars on development of the project, according to Raguz, with most of the money being spent outside of Burundi on contracting external services.
The cost of putting in energy infrastructure for BMM’s mining operations could be up to two billion dollars financed by partners and financial institutions, says Raguz, who adds that Burundi’s government will not receive any payments from his company this year.
Raguz does not rule out Kermas selling an interest in BMM, saying his company “believes in this project” and would not sell a majority of shares to anybody. “Of course, other investors can participate,” he says.
The International Monetary Fund paints a bleaker picture than the World Bank in their forecasts. They expect a contraction in Burundi’s economy of 7.2 per cent in their World Economic Outlook 2015.
“At the moment, it’s very gloomy. Burundi’s experiencing the worst economic and political crisis since the civil war,” says sub-Saharan Africa economic expert Stein. “Burundi has no fiscal space to counter this negative growth. Such figures translate into more people unemployed, more households will be deprived of their incomes and more people will remain in poverty.”