Burundi: New Dawn - Reforms Chart Fresh Economic Path for Burundi

4 November 2022

Better known as the 'heart of Africa', Burundi's economic pulse has been slow over the years, but the rhythm is steadily gaining momentum, dancing to the tune of President Évariste Ndayishimiye, given his recent purge of top officials amid a raft of policy reforms.

Deeply entrenched corruption among government officials, coupled with a history tainted with conflicts and civil wars, has slacked Burundi's economic growth to the proverbial slump. Under his predecessor the late Pierre Nkurunziza, the country was uncivil with corrupt government officials enjoying state protection and the status of being 'untouchable'.

However, among President Ndayishimiye's reforms is to crack down on monopolies held by party elites over various economic sectors. Burundi has been facing fuel, cement and sugar shortages for months, and President Ndayishimiye believes that top officials were behind the shortages so as to hike prices and milk the opportunity. Another purge occurred in June, as the president sought to remove the chaff from his judiciary, firing 35 magistrates accused of obstruction of justice and corruption.

Despite it being the poorest nation in the world, Ndashimiye has been keen to open a new chapter for Burundi. Furthermore, he has been on a house clean-up campaign to root out the so-called inhibitors of progress. The political reshuffle is bound to bring the much-anticipated reforms that Burundians have desired, and chart a new economic pathway to quash challenges impeding economic recovery.

As the country marked 60 years of independence in July, there was little in terms of economic achievements given the six-decade period the country has had to build itself. It was a vivid reminder of how conflict and corruption can tear apart the entire economic fabric of a nation. Burundi was ranked at 185th place out of 189 countries in the 2019 Human Development Index (HDI). Inarguably, no economy can thrive in such unrest. Conflict has hindered Burundi's economic progress and depleted the country of investment opportunities.

Brief History of Burundi's Economy

Since independence in 1962 from Belgium, Burundi has been plagued by a cycle of civil wars. The country has witnessed five eruptions of civil wars which have claimed the lives of over 500,000 people and stemmed a refugee crisis of over a million people. The last two are said to have dented Burundi's economy the most--the 1993 to 2005 civil war and the last one from 2015 to 2018. The latter was instigated when Nkurunziza sought to change the constitution to guarantee him a third term in office. Political violence broke out and gross human rights violations took place. This brought up a sea of sanctions that were deleterious to the economy. To start with the country had barely recovered economically from years of civil war. Imposed by the EU and the US, as well as individual countries like Belgium, the sanctions froze financial support for Burundi's budget. This generated both fiscal and balance-of-payments difficulties. For instance, the EU froze 432 million euros in funding, abiding by Article 96 of the Cotonou Agreement. The sanctions dwindled foreign direct investment and aid flow, and additionally denied the country access to the World Bank and the IMF.

Nonetheless, in 2020 when push came shove, the country was thrust headlong into a recession caused by both the financial sanctions and the Covid-19 pandemic. Economic growth contracted to 3.3 percent in 2020 from 4.2 percent in 2015. President Ndayishimiye was sworn in the same year, and began to pursue a path towards lifting the sanctions that were choking his economy. In November 2021 and early 2022, both the US and the EU had lifted the sanctions, giving the country a shot at rebuilding its economy and re-engaging with international partners. The budgetary support comeback, together with inflows from FDI offered the country financial relief to reignite development in key growth areas. The Russian-Ukraine war dealt yet another blow to the fragile economy, which has been grappling with a severe lack of foreign currency and rising government debt. Currently, the country's debt-to-GDP ratio stands at 72.4 per cent.

Burundi's Economic Status quo

According to the 2022 African Economic Outlook (AEO) published by the African Development Bank (AfDB), Burundi's economic outlook is favourable, with projected GDP growth rates of 3.6 per cent in 2022 and 4.6 per cent in 2023, owing to the continuing recovery of agriculture and public investment. Global inflationary pressure intensified by the Russia-Ukraine conflict is expected to increase the inflation rate to 9.3 per cent in 2022.

Furthermore, economic growth is projected at 2.1 per cent in 2022, supported by gains across all sectors, an increase from 1.8 per cent in 2021 and 0.3 per cent in 2020. The report additionally indicates that inflation will remain high at around 12 per cent in 2022, particularly following the impact of the war in Ukraine on food and oil prices worldwide; as opposed to 8.3 per cent in 2021 and 7.5 per cent in 2020. Moreover, the rising value of oil product imports will increase the commercial deficit and aggravate the current account deficit which will increase from 15.4 per cent of GDP in 2021 to 15.9 per cent in 2022, before narrowing to 14.8 per cent in 2023. Public debt is projected to fall to 70.2 per cent of GDP in 2022 and 66.5 per cent in 2023, from 71.9 per cent in 2021, on budget consolidation.

Burundi formulated the National Development Plan (NDP) 2018-2027, in order to provide a socio-economic diagnosis of the country to structurally transform the Burundian economy for robust, sustainable, resilient, inclusive growth, creating decent jobs for all and leading to improved social welfare.

By the same token, the National Peacebuilding Program was developed in 2020 to operationalize the NDP. This program serves as a reference for all intervention strategies and actions aimed at promoting economic growth, community recovery, reintegration and sustainable and inclusive resettlement in Burundi.

Late September marked the launch of an economic memorandum report of Burundi supported by the World Bank. This was aimed at identifying opportunities to accelerate economic growth. Prepared with perspective to the successive external shocks of both the pandemic and the Russia-Ukraine conflict, some of the proposed solutions included increasing agricultural productivity, boosting trade, and managing natural capital, investing in infrastructure, restoring macroeconomic stability and strengthening infrastructure governance.

For trade facilitation, Burundi is a member of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the African Free Trade Area Agreement (AfCFTA). Economic diversification is a path Burundi needs to tread, in order to expand its narrow export base. This will be beneficial in the long run, not only to cushion the country from external shocks, but also to boost both revenue generation and job creation. For Burundi to get back on its feet again, it needs international backing, mobilization of internal forces and proper management of existing resources in order to attract the right investors.

Key priority sectors include:

  • Climate-smart Agriculture

Being a mainstay in Burundi, agriculture is a key economic sector that will aid the country's economic revival. Farming is integral to ensure the country's food security especially due to its rapid population growth rate, estimated to be at 3 percent in 2021.Two-thirds of the country's 10.6 million people live below the poverty line and more than 90 per cent derive their livelihoods from agriculture. The vast majority of the country's poor people are small-scale subsistence farmers. Agricultural production covers an average area of 0.50 ha per household, but only translates into 65 per cent of the food requirements, resulting in the country's dependence on food imports. However, this vital sector suffers from low public and private investment, weak capacity, overexploitation of natural resources and vulnerability to climate change such as floods and droughts, as well as soil degradation, diseases and pests, and barriers to market access.

Burundi's agricultural products include palm oil, cassava, beans, sweet potatoes, maize, rice, taro, tea, coffee, sugarcane, sorghum and vegetables. Burundi's approach in the formulation of agricultural production is based on a long-term Burundi Vision 2025, a national Poverty Reduction Strategy Plan (CSLP), a National Agriculture Strategy (2008), the National Agricultural Investment Plan 2012-2017, and a Comprehensive Africa Agriculture Development Programme.

In addition, the Agriculture and Livestock Value Chains Sustainable Development Support Project (PADCAE-B) by the AfDB, aims to promote intensive and modernized agriculture to ensure food security and foster market agriculture. Upon full implementation, the project will help to fight food and nutrition insecurity, promote youth employment and gender, and boost agricultural output through resilient and sustainable agriculture. In addition, Country Strategic Opportunities Programme (COSOP) for Burundi was approved by the International Fund for Agricultural Development (IFAD) in 2016, to generate economic opportunities and improving food and income security for rural households, particularly for the poorest households.

Given that agriculture in Burundi is also threatened by climate change, Burundi farmers need to adopt climate smart agriculture to guarantee food security. The government is promoting initiatives to modernize and diversify agricultural production. The country needs better technologies to increase productivity in order to generate higher yields. With perspective to the country's massive potential for irrigation, the government should look into attracting investments in this sector to further bolster food security.

  • Information Communication Technology

Information Communication Technology (ICT) is another key sector that could revolutionize Burundi's economy. A plethora of opportunities exist in this sector, as Africa on the whole is in the age of digital disruption. The market for high-speed broadband internet is largely untapped and other opportunities lie in fiber optics installations which includes e-administration and e-banking, and database management centers, ICT for energy, tele-health and tele-education sectors. With perspective to its high population density and low internet connectivity rates, Burundi wields a massive telecom market potential that, should the government deploy effective strategies to seal the gap, could reap largely.

In addition, the government in early 2018 kick-started the Burundi Broadband project, which aims to deliver national connectivity by 2025. Based on this improved infrastructure the government and ITU have developed an ICT strategy to make use of telecoms to promote the country's socio-economic development through to 2028.

  • Processing and Manufacturing Industry

The processing and manufacturing sector is another critical sector that could greatly contribute to Burundi's economic rebound. The country imports almost all manufactured consumer goods therefore opportunities abound in almost every industry. For example, in 2019 the value of pharmaceutical products imports cost $62million, fertilizers cost $27million, textiles was valued at $52 million iron and steel cost $55 million.

Albeit relatively nascent, existing gaps in the industry include the need for food products processing industry, chemical industry especially for fertilizers as agriculture is a mainstay activity, pharmaceutical industry, because very few drugs are produced locally as well biodegradable packing industry. Further, there is need for additional shoe and textile industries as the country has one with very limited technology. Moreover, industrial production of building materials such as cement, metals sheets, tiles and glass is also needed.

Being a member of both the EAC and Central African Economic and Monetary Community, Burundi is a link between East and Central Africa which offers a market for the country's exports. The ZES Burundi (Zone Economique Speciale Burundi) offers numerous opportunities for local, regional and international investors in manufacturing plants and commercial agriculture.

  • Energy Sector

Burundi's energy sector holds much promise that could greatly benefit the economy. Deficits in commercial hydroelectric power production exist, and so does the robust potential for generating renewables such as solar and wind energy. Burundi's main sources of energy include biomass, petroleum products, HEP and peat.

According to the World Bank, Burundi currently has one of the lowest levels of electrification on the African continent, with a rate of only 11 percent. AfDB estimates Burundi's installed electrical capacity at 39MW. Burundi's hydroelectric field was evaluated at 1700MW in the 1980s, of which about 300MW was economically exploitable. Furthermore, the country has a 10MW geothermal energy potential.

Burundi faces an access to energy problem. With a growing population and rampant urbanization, renewable energies are an alternative to managing the energy crisis. Hydropower, the primary source of electricity production in Burundi, is still largely under-exploited and could be the way forward for the growth of electricity supply in the years to come. Well-managed forest resources can also be a valuable renewable energy source.

Over and above, the country's solar and wind resources wield massive potential, given that the average sunshine received annually is close to 2000 kWh/m²/, which is similar to the southern Mediterranean regions in Europe. In light of this, high levels of sunshine make off-grid solar energy a viable option to meet the energy demands of the country's high population density. Burundi needs to optimize the potential of the energy sector to foster growth and socio-economic development.

  • Tourism and Hotel Industry

Boasting more than 120 tourist attraction sites, Burundi's tourism sector possesses huge potential to make significant contributions to the country's economy. Just recently, President Ndayishimiye started a domestic tourism circuit to promote tourism in the country, in cognizance of its role in rebuilding the economy of Burundi.

To boot, in an effort to boost tourism and investment in Burundi, the government waived visa processing through its embassies in December last year, and introduced visa on arrival for all foreign nationals willing to visit or invest in the country. Untapped potential in this sector exists in improving beach tourism and water sports on Lake Tanganyika, construction of hotels and attracting major international hotel chains, lodges in national parks, fast food restaurants, eco villages, conference centres, and introduction of ecotourism.

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