Benin is a small African county located on the Gulf of Guinea between Togo and Nigeria.
The capital is Porto Novo, but the most important city from a business perspective is Cotonou city. The two cities are very close to each other (20 kilometers).
The population is about 11 million people.
The GDP per capita is 2.300$ and it is below the African average.
Consequently, the size of Benin’s economy is very small: the GDP of all the Nation is around 25 billion $.
In terms of comparison, the size of Benin is similar to Cuba or Bulgaria.
BUSINESS OPPORTUNITIES
First opportunity: GDP growth and demographic
The GDP growth was very strong in Benin in the last 10 years (4.5% in the average).
The population is also growing fast and it is one of the youngest nations in the world: the average age in Benin is 18-year-old and 50% of the people are younger than 25.
Benin is a fast-growing country and from a business perspective, it is a market that will evolve considerably in the future decades. The investment should be analyzed in a long term view, considering the great potential of the economy.
Second opportunity: French language
Benin was a French colony and French is the official language of Benin.
Other local languages are also spoken, but only by minorities. In Benin French is used in everyday life by most people.
It is a considerable advantage for those of you that are familiar with the French (that is among the most spoken and studied language in the world).
The French influence is not limited to the speech. The law system was also affected, the Benin civil law is largely based on the French civil law.
Speaking about corruption, the corruption in Benin is medium-high, however, in the African panorama this level is lower than most African nations.
Third opportunity: investments in new infrastructures
Benin is spending 27% of GDP on investment in fixed capital.
The largest amount is direct into new infrastructures, like the improvement of Cotonou port, the new international airport, and around 1.300km of new roads are in construction.
Fourth opportunity: stable currency
Benin uses together with other 8 African countries the West Africa Franc (CFA). For this reason, there is not a Central Bank of Benin, but only one central bank in common with the 8 African states. It is called the Central Bank of West African States which is based in Dakar (Senegal).
They are: Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo
It is pegged with the Euro and therefore is a stable currency.
It is a considerable advantage for companies that are based in the European Union or in other African countries that have adopted the African Franc because it prevents the exchange rate risk.
Fifth opportunity: the port of Cotonou
Cotonou is the largest and the economic capital of Benin.
The city is also one of the largest commercial ports of Western Africa and this is important because it served not only Benin, but also internal African markets like Niger or Burkina Faso, but also Nigeria that is the largest and most important economy in central Africa.
Basically, Cotonou is a trade hub that allows reaching a large part of Western Africa. A huge volume of Africa imports and exports is processed in the port of Cotonou.
BUSINESS RISKS
First risk: still a small internal market
The market is very small: only 25 billion $. In fact, the population is not large (11 million inhabitants), and the GDP per capita is only 2,300$ below the African average.
Benin is among the poorest nations in the world and most of the population is living in a condition of severe poverty.
In the tab below, you can see how low is a GDP per capita of $ 2,300 compared to other counties.
Benin is included in the list of Least Developed Countries and is a beneficiary of the “Everything But Arms” program, promoted by the European Union (no duties and no quota in the export in the EU).
Second risk: poor infrastructures
We wrote that Benin is investing in infrastructures, however, the starting point is very low.
Just a couple of significative numbers:
- The electrification rate is 30%. It means that 70% of people do not have access to electricity. There is a big gap in the Benin infrastructure system between the main cities (Porto-Novo and Cotonou city) and rural areas, but in any case, the level is extremely low.
- Internet users: only 12% of the population use the internet. Consequently, 88% of the inhabitants do not. This must be kept in mind for companies that are from advanced economies: you cannot communicate with people/customers by using online marketing. We would like to be clear about this point because many companies think about online marketing like “the cheap advertising” to use when and where there is no enough budget. Operate in a poor market that has a low internet user base request a completely different approach.
Third risk: low literacy rate
In 2015, only 38% of Benin’s people above 15-year-old was able to read and write.
The hope is that this data will improve sensibly with the new generation, taking into account that the population is among the youngest on the planet.
Instruction is the base for sustainable economic development, and public institutions must focus on this topic.
Fourth risk: no abundance of natural resources
Compared to other countries in Africa, there are not a lot of natural resources in Benin.
Despite this topic is controversial, natural resources are fundamental to attract foreign investment in the first phase of the development of a poor country. The point is how the profits gained by selling natural resources are used by local authorities. Too many times they did not exactly share and invested with the benefit for a large portion of the population.
However, Benin is not particularly rich in natural resources (at least for what is known) and will not help for faster development.
Fifth risk: dependence on commodity price
This risk is common for poor countries that do not have a developed economy. The industry and the services are not development and the economy is largely based on commodities.
In the case of Benin, the main export is cotton. A fluctuation in the price of cotton can boost or slow the GDP growth.
Benin exports most of its cotton to Bangladesh the world’s largest clothing producer.
By the way, we should also consider that Benin agriculture is not always conducted efficiently.
CONCLUSIONS
In the next decades, the African continent will be the one that will change more and the main reason is demographic.
The population is growing very fast and Benin is one of the countries that is growing more.
The question is: how Benin will change in the next 20 years?
It is impossible to answer this question. Most of the Asian countries grew fast in the last 30 years thanks to the delocalization of the production activities from USA/Western Europe to their countries. It might be possible that due to the increase in salaries in Asia will create a new trend in delocalization from Asia to Africa. If that happens Benin could be an interesting place to delocalize: there is an important port, the corruption is relatively low and salaries are way lower than most Asian countries.
Benin is a bet and it is a bet in long terms (20-30 years).
However, the African continent is the one that will change more in the next decades, and have to be monitored because many new business opportunities will be created.
Link to data sourca: The World Factbook (CIA) – Benin
Other info about Benin in our Country Data page: Benin Country Profile
Globartis Research
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