Report No. 120306-NE NIGER: Leveraging Export Diversification to Foster Growth Volume I. Main text December 09, 2017 Document of the World Bank ___________________________ Acronyms BSE Bovine spongiform encephalitis MPO Macro Poverty Outlook CCIAN Chamber of Commerce, Industry NAHDIC National Animal Health and Crafts of Niger Diagnostic and Investigation CFA Financial Community of Africa Center CGE Computable General Equilibrium NAIC Newly Agro-Industrializing CNIP Conseil National des Countries Investisseurs Privés OIE Office of Epizootic DB Doing Business PDES Economic and Social DTF Distance-to-Frontier Development Plan ECOWAS Economic Community of West QMS Quality Management System African States RCA Revealed Comparative CET External Common Tariff Advantage EM Extensive Margin REER Real Effective Exchange Rate EOD Economic Orientation ROW Rest of the World Document SAM Social Accounting Matrix EPA Economic Partnership SCL Société de Cultures Légumières Agreement SME Small and Medium Enterprises ES Enterprise Survey SSA Sub-Saharan African EU European Union TAD Transboundary Animal Diseases FMD Foot-and-mouth Disease TFA Trade Facilitation Agreement FMIA Federal Meat Inspection Act TFP Total Factor Productivity GAFTA Greater Arab Foreign Trade TRIST Tariff Reform Impact Simulation Agreement Tool GCC Gulf Cooperation Countries UAE United Arab Emirates GVA Gross Value Added UFPEA Uganda Fish Processors and HHI Hirschman-Herfindahl Index Exporters Association IC Investment Climate VCF Veterinary Cordon Fence ICT Information and Communication WAEMU Western African Economic and Technology Monetary Union IM Intensive Margin WDI World Development Institute LMP Livestock Master Plan Preface For many decades, Niger has been a commodity-dependent country, mainly relying in uranium, oil and gold. However, the experience of other countries, in Africa and other parts of the world, shows that large scale production of minerals and oil resources offers great opportunities, but also presents major challenges. One of those is high volatility in GDP growth that translates into fragile fiscal stances, and a resource curse that does not allow such sort of enclave economies to create more and badly needed better jobs, and prevents the expansion of long-term physical and human capital. Niger is no exception to this and given its record-high population growth the severity of such curse is dramatic. Below, we shall not try to summarize the main conclusions of the report, but would like to emphasize the following ten messages, which -- we believe – can shape future government policies and provide Niger with a solution to this conundrum. First message. The Government views economic – and export -- diversification as a key component of its Vision 2035 and Economic and Social Development Plan (PDES) 2017-21. This report fully supports that view. International experience shows a strong correlation between export diversification and growth accelerations. This report underscores that under its present commodity-based development model, Niger’s economy would only reach modest average growth rates until year 2025; while diversification-prone – mainly focused on agricultural productivity – would allow it to reach higher and sustained growth rates. Second message. An exhausted commodity-dependent growth model, a too slow structural change process, and a very small internal market for a potentially to be expanded production are three major reasons why Niger must diversify its exports. Unless Niger breaks with the past, it will remain a low-productivity economy dominated by subsistence agriculture, informal services and concentrated mining and oli-related exports. Third message. Climbing the four-step ladder of an export diversification strategy is urgent. From simple to more complex endeavours, making these complementary steps would gradually upgrade the country’s capacity at (i) exporting more of the same, combined with (ii) the opening of new markets –region and global – abroad, (iii) the piloting of new winners – especially agri-based; and (iv) the move into a full-fledged sectoral diversification strategy. Fourth message. Proposing a free trade agreement with Nigeria would send a clear signal of Niger’s interest for unfolding an outward-oriented diversification strategy. As its largest market in the ECOWAs region, Nigeria can be on itself an engine for Niger’s traditional agri-exports growth, and there are mutually beneficial large economic, social and security benefits for both countries. A bilateral free trade agreement should focus at reducing transaction costs, complementing investments in regional transport and energy infrastructure, and improving logistic services. Fifth message. While regional neighboring markets remain a priority for agri-exports growth, Asian and GCC markets feature higher potential. In this regard, ANIPEX can play a major role helping gather commercial intelligence, facilitating upgraded interactions between buyers and sellers and developing commercial databases. Sixth message. When it comes to piloting new products, selectivity is more important than accelerated dispersion. A massive increase in public programs poorly designed, even if these are centered on pilot exports, will do more harm than good. The report rather advocates a well selective, sequenced and monitored export promotion approach. Most of the agri-based products already identified by the Government are on target, but the list of potential winners is longer, and this includes ICT services. The Government should focus on existing emerging export products in the short term and gradually move to new products as far as fiscal resources are available and private firms actively demonstrate interest to invest in them. Seventh message. A full-fledged agri-based diversification strategy should combine an export- prone trade policy, streamlined business regulations and a revamped infrastructure to remove constraints to private sector growth. A multiplicity of border taxes and NTB barriers harm exports competitiveness and encourage informal trade and corruption. Lack of an independent exchange rate policy makes eliminating such distortions the only policy option. Niger has also made solid and promising progress on improving Doing Business rankings, but cumbersome Customs and trade regulations, low access to finance, poor telecommunication and transport services, lack of support in partner markets, and poor marketing conditions remain as binding constraints. Finally, besides low access to electricity, numerous trade transit gaps affect the key corridors linking its economy to the ports of Cotonou and Lomé, and to Nigeria’s markets. The management of the two dry ports (Dosso for the Cotonou corridor and Niamey Rive Droite for the Lomé, Tema and Abidjan corridors) needs to be reviewed, exploring their potential to concession their management to the private sector. A last priority initiative should be the construction of a 49- hectare parking area in Maradi for trucks en route to Nigeria. Eight message. Even though Niger has in bovine meat and onion two potential game-changers, the value chains in both products are badly organized and feature a low participation in their global and regional value chains. Despite Niger’s bovine stock is high, the country does not even meet its dairy consumption needs. And while Niger is the largest producer and exporter of upscale and highly appreciated Violet de Galmi onion segment, it does not fully meet buyer’s standards abroad. Thus, both products are facing increasing regional competition from Burkina Faso and Senegal (and Nigeria meat following the naira devaluation) in the region, and from Brazil, Holland and China in the global markets. Ninth message. The country needs to work at upgrading its selected GVCs. Once proper GVCs selection is made, the challenge consists in addressing the entirety of the value chain constraints simultaneously, especially in three major upgrading segments: improved quality and production technical standards, which likely requires investments in technology and critical infrastructure (e.g. upgraded slaughterhouses for quality meat); implementation of a massive training program dedicated to export certification schemes allowing products to enter global markets; and attraction of major buyers foreign firms located at niches and higher value segments of the chains. Tenth message. This report describes the key policies for Niger to succeed leveraging growth with export diversification. However, more national consensus, specificity and institutional strengthening are needed to translate these policies into action plans. This should be a priority of the implementation of the PDES 2017-21. Acknowledgements This report is the result of a team effort of the MFM and Trade and Competitiveness Global Practices benefitting from the support of the Poverty, Governance and Finance and Markets Global Practices and the IFC, which also contributed to this document with background papers and other relevant technical notes and inputs, as well as participants in several discussions with key Nigerien counterparts. The team is most grateful for the generous collaboration of the Nigerien authorities, and in particular, to the representatives of the Ministry of Planning, Ministry of Economy and Finance, Ministry of Commerce, Ministry of Planning, Ministry of Agriculture, Ministry of Mines and Industry, National Institute of Statistics, National Agency for Investment and Exports (ANIPEX), Chamber of Industry and Commerce, National Union of Niger who provided valuable support and held candid discussion throughout the preparation of the study. This report was prepared by a multi-GP team led by Jose R. Lopez Calix (TTL, EFI Program Leader – AFCW3) and comprised by Jean Christophe Maur (co-TTL, Senior Economist – GTC07), Johannes Hoogeven (Lead Economist - GMFDR), Luc Razafimandimby (Senior Economist – GMF08), Fiseha Haile Gebregziabher (Economist – GMF08), Salma Daki (Consultant – GEE05), Thomas Bossuroy (Economist – GSP07), Nancy Benjamin (Senior Economist – GTC07), Nihal Pitigala (Consultant), Mahaman Sani (Private Sector Specialist, GTC07), Irum Touqeer (Public Sector Specialist, GSP08), Gael Raballand (Lead Public Sector Specialist, GSP09), Mehdi Benyagoub (Private Sector Specialist GTC07), Lauren Clark (Consultant), Bonaventura Fahodan (Consultant), Ghada Ahmed (Consultant), Dinar Prihardini (Economist, GMF14), Kirstin Roster (Strategy Analyst, CCECE), Ephraim Khebede (Consultant), Masud Cader (Senior Portfolio Officer – CCECE), Silvia Muzi (Program Coordinator -- DECEA), Asif Islam (Economist DECEA). Their respective individual contributions are detailed in the references and background notes. Soukeyna Kane (Country Director, AFCW3), Siaka Bakayoko (Country Manager, AFMNE) and Paola Ridolfi (Country Program Coordinator, AFCML) provided general guidance and valuable support to the team. Lars Christian Moller (Practice Manager – GMF08) and Rashmi Shankar (Practice Manager, GTC07), Michel Rogy (Program Leader – AFCW3) and Christophe Lemiere (Program Leader, AFCW3) advised the team at different stages of the process and provided detailed comments to the chapters and drafts. Additional guidance has been provided by the peer reviewers: Daria Taglioni (Principal Country Economist – CCECE), Hans Lofgreen (Consultant, former Senior Economist), Fulbert Tchana (Senior Economist, GMF05), Vandana Chandra (Consultant, former Senior Economist), and Albert Zeufack (Chief Economist – AFRCE) and Cesar Calderon (Lead Economist, AFRCE). Maude Valembrum (Program Assistant – GMF08) and Fatimata K. Sy (Senior Program Assistant – AFMCL) did an outstanding work in formatting and editing the main document. Micky Ananth (Operation Analyst – GMF08), Hamsatou Diallo Barke (Executive Assistant, AFMNE), and Salimata Bessin Dera (Team Assistant, AFMNE) also provided excellent logistic support. Contents Preface .......................................................................................................................................................... ii Executive Summary........................................................................................................................................ i Chapter 1 Why Export Diversification Matters to Niger ............................................................................ 1 1.1 Diversification as a Top Priority for Niger’s Development ............................................................ 1 1.2 Niger’s Structural Challenges to Achieve Economic Diversification ............................................. 3 1.3 Options for Export Diversification................................................................................................. 8 1.4 Diversification and Structural Change Dynamics .......................................................................... 8 1.5 Behind the Headlines of Niger’s Structural Change .................................................................... 13 Chapter 2 Niger’s Trade Diagnostics and Facilitation Policies for Diversification ................................... 16 2.1 Niger’s Trade Features and Outcomes........................................................................................ 16 2.1.1 Trade Openness and Trends ............................................................................................... 16 2.1.2 The Structure of Trade ........................................................................................................ 17 2.1.3 Niger’s Evolving Export Destinations .................................................................................. 19 2.2 Niger’s Trade Policy..................................................................................................................... 22 2.2.1 WAEMU/ECOWAS: The Role of the Common External Tariff ............................................. 23 2.2.2 NTBs .................................................................................................................................... 25 2.3 Simulating the Implication of Regional Trade Agreements on Niger ......................................... 27 2.4 Trade Facilitation and Logistics ................................................................................................... 29 2.4.1 Logistics Performance ......................................................................................................... 29 2.4.1 Bilateral and Regional Frameworks to Address Niger’s Trade Facilitation Challenges....... 31 2.5 Key Findings and Recommendations .......................................................................................... 32 Chapter 3 Firms’ Growth and Competitiveness in Niger ......................................................................... 36 3.1 Introduction ................................................................................................................................ 36 3.2 Investment Climate at a Glance .................................................................................................. 36 3.2.1 Investment Climate Challenges through the Lens of a Firm’s Survey ................................ 36 3.2.2 Understanding the Implications of the Top Constraints ..................................................... 38 3.3 A Snapshot of the Regulatory Environment as Measured by Doing Business Indicators ........... 44 3.4 Export Performance and Constraints to Trade ........................................................................... 47 3.5 Central Policy Message: Sound Regulations for a Trade-based Diversification Agenda ............ 53 Chapter 4 Alternative Export Diversification Scenarios........................................................................... 56 4.1 Introduction: The Pillars of an Exports Diversification Strategy ................................................. 56 4.2 Explaining Niger’s Economic Growth and the Role of Openness................................................ 57 4.2.1 Simulating the Impact of Trade Reforms ............................................................................ 60 4.3 Comparing the Benefits of Alternative Export Diversification Scenarios ................................... 61 4.3.1 Simulating Economic Diversification: Baseline and Alternative Scenarios ......................... 61 Chapter 5 Exploring Niger’s Opportunities for Exports Diversification ................................................... 68 5.1 The Economic Composition and Diversity of Niger’s Exports ..................................................... 68 5.2 Measuring Niger’s Exports’ Potential ......................................................................................... 72 5.3 Identifying Possible Export Diversification Products .................................................................. 75 5.4 Opportunities for Export Diversification ..................................................................................... 79 5.4.1 Short-term Strategy: Fostering Existing Productive and Export Capabilities...................... 79 5.4.2 Medium-term Strategy: Expanding New Higher-value Added Export Opportunities ........ 80 Chapter 6 Upgrading Niger’s Global Value Chains in Bovine and Onions ............................................... 82 6.1 Introduction ................................................................................................................................ 82 6.2 The Global Bovine Value Chain ................................................................................................... 83 6.3 The Global Onion Value Chain .................................................................................................... 86 6.4 The Bovine Value Chain in Niger ................................................................................................. 88 6.5 The Onion Value Chain in Niger .................................................................................................. 92 6.6 Learning from Successful GVC Cases .......................................................................................... 97 6.7 Policy Recommendations ............................................................................................................ 99 References ................................................................................................................................................ 102 List of Tables Table 2.1. Niger’s composition of exports at HS 2-digit level ..................................................................... 18 Table 2.2. Niger’s export destinations in million US$ (2000,2007 and 2015)............................................. 19 Table 2.3. Niger’s CET, MFN and ECOWAS tariff rates................................................................................ 24 Table 2.4. Niger and peer trading across borders indicators ...................................................................... 30 Table 2.5. Matrix of policy interventions .................................................................................................... 34 Table 3.1. IC constraints by firm type (Pct. rated as major or severe) ....................................................... 37 Table 3.2. Electricity: regional benchmarking ............................................................................................. 40 Table 3.3. Benchmarking of corruption indicators in Niger ........................................................................ 42 Table 3.4. Telecommunications Indicators by firm type (%) ...................................................................... 44 Table 3.5. DB – trading across borders indicators, 2017 ............................................................................ 48 Table 3.6. Export market characteristics, in percentage ............................................................................ 49 Table 3.7. Biggest obstacles to exports ....................................................................................................... 52 Table 3.8. Matrix of policy actions to improve the business environment ................................................ 53 Table 4.1. Average values of trade-to-GDP ratio (%) .................................................................................. 60 Table 4.2. Potential impact on Niger’s GDP growth per capita (%) ............................................................ 60 Table 4.3. Baseline projections of key macroeconomic indicators............................................................. 63 Table 4.4. Results for key macroeconomic indicators – average annual growth rates between 2017 and 2025 (except where indicated) ................................................................................................................... 66 Table 4.5. Macro and sectoral indicators by simulation in 2025 (unless otherwise indicated) ................. 67 Table 5.1. Export concentration indexes and exports revenue volatility, average 1995-2014 .................. 70 Table 5.2. Average RCA by sector in 1995 and 2014 .................................................................................. 72 Table 5.3. Niger: Potential products for export diversification seen under different criteria .................... 77 Table 5.4. Niger: Potential services for export diversification seen under different criteria ..................... 78 Table 5.5. ANIPEX selected products for export promotion ....................................................................... 79 Table 6.1. Niger bovine value chain strengths, weakness, opportunities and threats (SWOT) ................. 92 Table 6.2. Onion value chain strengths, weaknesses, opportunities and threats (SWOT) ......................... 96 Table 6.3. Upgrading in Niger’s bovine value chain .................................................................................. 100 Table 6.4. Upgrading in Niger’s onion value chain ................................................................................... 101 List of Figures Figure 1.1. Contrary to its neighbors, Niger GDP per-capita has stagnated over 35 years .......................... 2 Figure 1.2. Structural challenges to economic diversification ...................................................................... 4 Figure 1.3. Stylized facts about GDP growth and the external sector .......................................................... 6 Figure 1.4. The ladder of export diversification ............................................................................................ 8 Figure 1.5. Manufacturing's share of GDP (value added, %) ........................................................................ 9 Figure 1.6. GVA by sector, 1990–2015........................................................................................................ 11 Figure 1.7. Share of employment by sector ................................................................................................ 11 Figure 1.8. Correlation sector productivity and change in employment (1990–2015) .............................. 12 Figure 1.9. Decomposition of labor productivity growth, 1990-2015 ........................................................ 13 Figure 1.10. Decomposition of labor productivity growth across world regions, 1990-2005 (Niger, 1990- 15) ............................................................................................................................................................... 13 Figure 1.11. Labor force decomposition between formal and informal sector.......................................... 14 Figure 1.12. Monthly earnings (FCFA) and % of the workforce in the wage sector (2011) ........................ 15 Figure 2.1. Trends in Niger’s trade (2002-2015) ......................................................................................... 17 Figure 2.2. Composition of exports 2009 and 2015 .................................................................................... 18 Figure 2.3. Hirschman-Herfindahl Product Concentration Index (2011/2015) .......................................... 20 Figure 2.4. Niger’s trading partners: predicted vs. actual exports ............................................................. 20 Figure 2.5. Niger’s orientation of exports products and destinations ........................................................ 21 Figure 2.6. Niger’s intensive and EM .......................................................................................................... 22 Figure 2.7. Nominal and REER ..................................................................................................................... 23 Figure 2.8. TRIST simulations ...................................................................................................................... 29 Figure 2.9. Niger’s comparative LPI score-2014 ......................................................................................... 31 Figure 3.1. IC constraints (Pct. rated as major or very severe) ................................................................... 36 Figure 3.2. Informal competition by firm characteristics (percent)............................................................ 39 Figure 3.3. Electricity (Pct. rated as major or very severe) ......................................................................... 39 Figure 3.4. Main electricity Indicators by firm size ..................................................................................... 40 Figure 3.5. Political instability (Pct. rated as major or very severe) ........................................................... 41 Figure 3.6. Corruption (Pct. rated as major or very severe) ....................................................................... 42 Figure 3.7. Telecommunications (Pct. rated as major or very severe) ....................................................... 43 Figure 3.8. Comparative DB rankings – selected countries ........................................................................ 45 Figure 3.9. DB – trading across borders, 2017DTF and Rank ...................................................................... 48 Figure 3.10. Export participation ................................................................................................................ 48 Figure 3.11. Proportions of sales directly exported .................................................................................... 49 Figure 3.12. Major or very severe constraints to operations, direct exporting firms (% of firms citing constraint) ................................................................................................................................................... 51 Figure 3.13. Major or very severe constraints to operations, non-exporters (% of firms citing constraint) .................................................................................................................................................................... 51 Figure 3.14. Biggest obstacle to operations, all firms, 2009 and 2017 (% of firms citing constraint) ........ 51 Figure 3.15. Biggest obstacle to operations, percentage point change 2009 to 2017 ............................... 51 Figure 3.16. “Major� or “Very Severe� obstacles for exports to main markets (percent of firms) ............ 52 Figure 4.1. Determinants of growth per capita in Niger ............................................................................. 59 Figure 4.2. Macro growth by simulation (%-age point deviation from base-average annual growth rate) .................................................................................................................................................................... 67 Figure 5.1. Niger’s export composition ....................................................................................................... 68 Figure 5.2. Niger’s export destinations for main ........................................................................................ 69 Figure 5.3. Niger’s export composition in 1995 and 2013 .......................................................................... 69 Figure 5.4. Niger’s export concentration and diversification indexes ........................................................ 71 Figure 5.5. Niger’s exports trends ............................................................................................................... 71 Figure 5.6. Niger’s fitness and wealth trajectory ......................................................................................... 73 Figure 5.7. Niger’s sector fitness ................................................................................................................. 73 Figure 5.8. Niger’s product space, 2014 ...................................................................................................... 75 Figure 6.1. The global bovine value chain map ........................................................................................... 84 Figure 6.2. Top bovine exports in Africa in 2015 ......................................................................................... 84 Figure 6.3. Top bovine importers in Africa in 2015 ..................................................................................... 85 Figure 6.4. The onion global value chain map ............................................................................................. 87 Figure 6.5. Leading importers of onions in Africa in 2015 .......................................................................... 88 Figure 6.6. Niger livestock ........................................................................................................................... 89 Figure 6.7. Bovine value chain challenges in Niger...................................................................................... 91 Figure 6.8. ECOWAS milk imports ............................................................................................................... 91 Figure 6.9. Niger onion production and exports ......................................................................................... 93 Figure 6.10. Niger's onion exports by country 2004 - 2015 ........................................................................ 95 Figure 6.11. Constraints in Niger's onion value chain ................................................................................. 96 List of Boxes Box 1.1. Main features in the labor market detrimental to structural change .......................................... 15 Box 2.1. Caveats of using published trade data on Niger ........................................................................... 16 Box 2.2. Niger Government trade policy .................................................................................................... 22 Box 2.3. Customs collects one third of what it should do due to tax exonerations and smuggling ........... 26 Box 5.1. A short-term export diversification strategy ................................................................................ 80 Box 5.2. A medium-term export diversification strategy ........................................................................... 81 Executive Summary Niger’s new Vision 2035 aims to diversify its economy away from natural resource-based commodities but the country faces major structural changes 1. Niger’s Vision 2035 acknowledges the country has little choice but to create “a competitive and diversified economy.� Economic diversification is a cornerstone component of the Economic Orientation Document (EOD) 2016-19 and the PDES 2017-21. The EOD defines Niger’s economic diversification as moving exports away from natural resources and increasing the value-added component of exports as the foundation for its agro-based industrialization and employment creation policies. Hence, an exports diversification strategy is akin to the country’s economic diversification and, not surprisingly, the PDES contains several axes of policy interventions supporting it. 2. However, Niger faces serious structural challenges to diversify into new productive activities. The country is landlocked, exporting costs are high and, given multiple infrastructure and logistics gaps, access to markets is difficult beyond neighboring regional markets. Rapid population growth and low human capital turns into a low skilled population. Volatile economic growth, reliant on a few commodity exports that closely follow the vagaries of weather and boom and busts of international prices, makes hardly- obtained poverty gains vulnerable. There are four compelling reasons for Niger to urgently diversify its exports 3. Commodity curse, combined with a slow-changing economic structure, a small internal market, and the risks embedded in its specialization in low value added agricultural activities are four major reasons for diversifying Niger’s exports away from natural resources. First, its commodity-dependent model appears exhausted: uranium and oil potential outputs have reached certain limits and, even if new fields may come into stream, both activities have shown insufficient capacity to create sustained high growth rates and create enough employment for absorbing Niger’s staggering demographic boom. Multiple governments have tried unsuccessfully to transform commodity windfalls into sizable public savings and wise investment decisions. Second, the economy’s sectoral patterns show a very slow, albeit positive, speed of structural transformation that urgently requires acceleration to achieve the growth rate required to meet Vision 2035. Such slow speed is because low-productive agriculture still is predominant, manufacturing is stagnating and services are declining. Third, Niger’s domestic market is too small to be attractive to a minimum of foreign and domestic investment in the quantities needed for stimulating an incipient private sector. Hence, unless the country diversifies its exports, just natural resource-based exports and their related growth will keep its economy underperforming, except for short periods of booming commodity prices, that will furthermore preserve additional and well-known Dutch disease ills such as high GDP growth and fiscal volatility and incomes centered on rent-seeking activities. Fourth, as a typical “agricultural seller� country--using the taxonomy of global value chains—the country naturally tends to specialize in upstream production of agricultural low-value added production. However, international experience shows that the risk for Niger to see its industries relocating abroad is higher if the country keeps specializing in low-value added activities. But perhaps the most important reason is the need to mitigate the risk of no-diversification, which will likely not allow Niger to reach the expected high growth rates set by its Vision 2035 4. A first simulation exercise shows that diversification is growth-enhancing, as increased openness would generate significant growth gains for Niger. Simple benchmarking indicates that if Niger became as open to international trade as peers Burkina Faso and Cote d’Ivoire, its growth rate of GDP per capita would i increase by 0.26 and 1.32 percentage points (ppts), respectively. And if Niger’s trade ratio were on a par with Vietnam and Malaysia, two Asian economies that Niger would aspire to emulate, its GDP growth per capita would increase by roughly 1.8 ppts and 0.9 ppts, respectively. Well supported by structural reforms, openness will bring diversified assets and investment, better quality of institutions, time bound policies, competition and less capture. Indeed, opening alone will force the country to counter global business cycles and supply disruptions in far-away locations if it produces crucial inputs into production. 5. A second simulation exercise, based on a Computable General Equilibrium (CGE) model, concludes that without export diversification, Niger’s economy would be expected to grow at an average annual rate of 4.6 per cent until 2025, which is a modest rate at best in GDP per capita terms with a 3.9 population growth rate. And such conclusion is unaffected by a positive terms of trade shock. Indeed, under a positive external environment, simulating an increase in the prices of the products currently exported by Niger (or a decrease in the prices of imported products, i.e. a positive term of trade shock) would not alter fundamentally these growth rate results. This finding would reaffirm that the current commodity-based model has reached its limits. Besides, if another commodity windfall would happen, only the owners of the natural resource and high-skilled workers would mostly benefit from such terms of trade improvement. 6. Instead, higher growth impacts would arise from pro-export diversification policies boosting the productivity of agriculture or trade facilitation. Through its impact on productivity, investing in irrigation has the potential to increase average GDP growth from 4.6 per cent per annum in the baseline to 5.3 per cent per annum. The boost to real consumption is even larger, with average consumption growth increasing by 1 percentage point from 4.6 per cent per annum to 5.7 per cent per annum. This is explained by the fact that the improvement in agriculture productivity would benefit the incomes of both low-skilled rural workers, thus contributing to poverty reduction, as well as land owners. And similarly, higher growth effects, but less pronounced than in the previous case, would arise from improved trade facilitation policies. Climbing the ladder of export diversification is an urgent task for Niger 7. Niger’s export diversification strategy can be represented by a four-steps ladder. In the first one, exporting more of what it already produces as non-natural resource based products. In the second one, diversifying its export destination markets. In the third one, piloting non-traditional and more sophisticated (higher value added) emerging products; and in the fourth one, based on the previous step, moving into a full-fledged sectoral diversification exporting higher value added products. So far, Niger’s simultaneous progress across the ladder has been rather modest in terms of products intensity (first step), more visible in term new markets expansion (second step), still embryonic, albeit promising while piloting emerging products (third step), and slow but positive on structural change. Some policies might de facto address different ladders and be mutually reinforcing. For instance, moving into niche markets might expand demand for additional export volumes. Similarly, higher value-added products may require active exploration of new markets to make them profitable. But the overall trust of the strategy is that climbing the four ladders of diversification requires a gradual but sustained productive upgrading shift, from lower to higher complexity. In Step 1, Niger should export more volume with an eye on its regional neighbors and a free trade agreement with Nigeria would signal its shift to an outward-oriented diversification strategy 8. Exporting more of the same is the logical first step. Besides uranium, oil and gold, Niger’s most dynamic exports are agricultural products and livestock; and Niger’s main trading partner for these goods is Nigeria. Niger is the 18th most product exports-concentrated economy in Sub-Saharan Africa (SSA) and its level of diversity of exports has remained low over the past 15 years, centered around the uranium, petroleum and gold industries and, to a lesser extent agriculture and agro-processing industries, which feature declining export potential (competitiveness). However, between 2009 and 2014 food and textile exports grew by 28 percent and 13 percent annually. And while formal trade data could be misleading, as much of Niger’s trade is informal and unrecorded, actual export flows should be considerably higher. In fact, Niger is said to be the biggest exporter of vegetables to neighboring ECOWAS countries, including sorghum, millet and onions, which would imply a more diversified export portfolio than suggested by formal trade. In addition, as one of the costs of this informality is the lack of security at the border region with Nigeria, which is afflicted with attacks by violent groups who seize livestock and other assets and interfere with trade, a bilateral agreement would be mutually beneficial. Indeed, Niger buys grains from and sells food and livestock to Nigeria; while sizable Nigeria’s re-exports are also transported inland through Benin and Niger. 9. Hence, the first rung on the ladder of diversification would benefit from Niger making a concerted and comprehensive effort to deepen its regional and bilateral trade, especially with Nigeria. Nigeria, as the largest market in the ECOWAS region, can be just on itself, an engine of Niger’s export growth. Whereas there is room for a comprehensive free trade agreement, its focus should be at reducing transaction costs, complement investments in regional transport and energy infrastructure, and improve logistic services. To unlock such strategic move, a first unavoidable step would be to assess the mutual benefits to both Niger and Nigeria from mutually lowering tariffs and NTBs on key staple varieties; and in this way, remove their barriers to trade in agricultural and livestock products. These measures should be discussed under both the ECOWAS forum and bilateral channels. Greater joint efforts in security, bringing increased protection for people, land and livestock along the lengthy border with Nigeria are also needed to expand access to productive territory. Finally, these efforts could include guaranteed access to the Lake Chad shores to promote the fishing sector. In Step 2, Niger should open new markets in East Asia and the Gulf Cooperation Countries (GCCs), thus preventing a missed opportunity 10. Niger’s is already the 10th least export market diversified in SSA, but it can do much better. To do this, exporters face a continuous dichotomy between addressing regional versus overseas markets. Formal trade flows are dominated by exports of mining products, including uranium, petroleum, and gold, mostly to Europe. Uranium is mainly exported to France, while other extractives to Nigeria, Burkina Faso, the United States and the UAE. Taking stock of the little market diversity of Niger’s traditional exports, and capabilities that such export require (measured by product space analysis) shows a very sparse picture, with peripherical and scattered products, far from their main destination markets, which does not favor diversification. However, emerging agricultural products like palm oil is now exported to China and Malaysia. 11. Then, in the second rung of the ladder, geographic diversification efforts should be pursued to explore greater access to East Asian and GCC markets, which have become the main drivers of global trade. Data show promising signs of Niger breaking into non-traditional markets in Asia such as Vietnam and the GCC, especially for commodities. Between 1995 and 2014, Niger increased its share of exports to non- African countries from 30 percent to 39 percent (24 percent France and 15 percent Asia). This should be further deepened through strengthened export development institutions —like ANIPEX--to gather commercial intelligence, facilitate interaction between buyers and sellers and maintain commercial database on each country or region. In Step 3, Niger should pilot higher-value added export products pre-identified as potential winners, and in so doing, further raise the country’s external openness and competitiveness 12. The third rung of the ladder should require piloting higher value export products, as desired by its Vision 2035, which involves the acceleration of “structural change� in Niger’s economy. As the mirror process of economic diversification, structural change is the dynamic reallocation of labor from low- to high-productivity sectors/activities. In this regard, Niger’s economy remains significantly under - industrialized, even compared to other Sub-Saharan countries. Structural change is already happening but too slowly and it barely explains less than one-third of Niger’s labor productivity growth since the 1990s. In fact, since 1990, economic transformation has occurred in the economy with labor forces moving away from agriculture and trade (informal workers) to two key sectors, government services and, especially since 2010, mining and quarrying, and only marginally to manufacturing. This pattern of structural change is unfortunately linked to the mining resources boom and perhaps reaching a limit: Labor reallocation to government services, and to mining and quarrying may have reached their full potential for job creation because of respectively the lack of fiscal space for expanding the wage bill and frequent commodity price slumps and projected exhaustion of mineral resources. 13. The Government of Niger has rightly identified several agricultural and pastoral export products with export potential, but the list of possible emerging products is longer than those. Government studies have identified cowpea, onion, sesame seeds, souchet, gum Arabic, livestock meat, hides and skins, and artisanal handicrafts as having export potential and deserving to be supported by active policies. However, as higher value-added export products, the analysis would support the choice of new processed food products, such as pasta. Other agricultural products like rice and dates also offer highly feasible expansion and upgrading opportunities. Textiles remain attractive, while the ICT and travel services appear as most promising and are critical to support diversification. And paradoxically, for animal products, the diagnostic on live (particularly bovine) animals, except for the dairy industry, is inconclusive, as declining export figures seem biased by smuggling. This is according sector-estimates measures of product complexity (products which are naturally connected to more value-added and diversified sectors) and product-specific revealed comparative advantage (what Niger exports relatively more than the rest of the world). 14. Overall, at the pilot stage, the Government should not forcefully promote all priority sectors identified simultaneously, and a rather stepwise selection —combining a short-with a medium-term approach--and sound implementation mechanisms are more advisable. In the short-term, fostering existing productive and export capabilities is critical and plausible. Some of these agri-exports are raw materials, like onion and sesame. Processed food like pasta, as well as ICT services generating more value added could also be prioritized initially, even though investing in any of these sectors would require further and careful study of the specific constraints faced by their potential expansion. And In the medium-term, Niger should expand into new higher value-added export opportunities that would help the country raise its “economic fitness� in labor intensive manufacturing, like textiles, animal products (livestock), leather, agribusiness and metal products, and travel and transport services. To do this, close and permanent consultation with the private sector is also fundamental as an exclusive public sector-led export diversification strategy may end up with the wrong choices, especially if there is a potentially larger menu of export products and services than identified by the Authorities. In Step 4, Niger should complement its export diversification strategy with an export-prone trade policy, streamlined business and labor regulations and a revamped trade-facilitation infrastructure 15. High Customs tariffs resulting from regional trade arrangements and non-tariff barriers (NTBs) keep Niger’s economy highly protected. Niger has little independent control over the two traditional instruments of trade policy--the exchange rate and tariffs. As one of the eight member countries of WAEMU, since 1960 Niger has a common currency, the CFA franc whose parity is linked to the euro. Similarly, WAEMU member states have agreed to adopt a common external tariff (CET) which has been into effect since the end of the 1990s. While the recent depreciation of the CFA has favored Niger’s export competitiveness, high tariffs make diversification harder. Indeed, despite nominal tariff reductions under the regional arrangements, Niger’s applied tariffs remain not only higher than those of most regions, but subject to considerable distortions arising from no less than ten ad hoc border taxes and fees that encourage informal trade and corruption. Gradually eliminating such distortions is an obvious policy priority. 16. Then, an export diversification-prone trade policy should have Niger focusing on removing non- tariff barriers (NTBs) and improving trade facilitation by reducing border and transport costs. Niger can also make important headways by focusing on other areas creating costs on traders: border and transit costs in Niger caused by non-transparent trade barriers and misapplication of rules of origin, high costs of accessing foreign markets and of inefficient transport and logistics. The trade facilitation agenda would also need to include significant streamlining of Customs Procedures so as reduce opportunities for corruption arising from opaque and antiquated administrative procedures, and lack of modern procedures. Underway reforms are moving only slowly. After many years, the full adoption of ASYCUDA World is expected to be completed and operational in most Customs offices by end-2017. Work on a National Single Window at Customs, which will expedite the harmonization of import and export documents is at early stages. There would be also need to introducing regulations enabling customs automation, as this also reduces opportunities for corruption, and revise the Customs Code to should integrate e-payments. Other desirable initiatives include carry out an inventory of Niger’s bilateral and multilateral commitments in the areas of trade facilitation (Kyoto Convention and WAEMU/ECOWAS commitments) allowing for a harmonized application of the WTO Trade Facilitation Agreement (TFA). 17. Streamlined business regulations requires to tackle the major constraints to private investment in Niger: As a share of firms surveyed by a World Bank Enterprise Survey, informal competition (62 percent), access to electricity (47.9 percent), political instability (44.1 percent), corruption (36.2 percent) and access to telecommunications (34.5 percent) are the most cited issues. The relative importance of electricity for manufacturing and large firms is particularly noticeable, suggesting a key obstacle to firm growth and diversification into industrial production. Overall, these constraints point to four key areas of required policy intervention: The first one addressing the inefficiency of institutions and poor governance, illustrated by perceived obstacles such as informal activities, political instability and high levels of corruption. The second ones addressing two infrastructure-related gaps: electricity and telecommunications. A third set addressing the inefficiencies of factor and product markets: poor access to finance, cumbersome trade regulations and transportations, as well as the inadequate skills of the workforce (although rated lower between 20 and 30 percent). A fourth and last tier of constraints addressing those obstacles rated at or below 20 percent and referring to: business registration and the functioning of the courts. It is important to indicate that even if the latest obstacles do not appear as significant, most likely reflecting recent progress in some areas of the Doing Business (DB) report, some of these areas remain problematic. And particularly, large exporters perceived top constraints to exports are Customs and trade regulations (45 percent), low access to finance (43 percent), telecommunication (33 percent) and transport services (27 percent). Generally, exporters also cite issues related to lack of support in partner markets (60 percent), and poor marketing conditions (46.7 percent) as top constraints, ahead of finance and transport . 18. An effective and comprehensive trade policy should also address the numerous infrastructure gaps that plague trade transit through the key corridors linking its economy to the ports of Cotonou and Lomé, and to Nigeria’s markets. Road and logistics infrastructure is poor, including several road sections in poor state between the border of Malanville and Niamey. The management of the two dry ports (Dosso for the Cotonour corridor and Niamey Rive Droite for the Lomé, Tema and Abidjan corridors) needs also to be reviewed, with potential to concession their management to the private sector. Another priority government initiative should be the construction of a 49-hectare parking area in Maradi for trucks en route to Nigeria. Governance on corridors are an issue with significant illegal payments and associated road harassment in transit routes. Cross-border trade remains expensive and inefficient to a great extent due to the difficulty of obtaining import and export licenses. Domestic Transportation Market are unorganized and fragmented, characterized by mostly artisan carriers and a low number of formal enterprises. 19. Last but not least, to accelerate its sectoral diversification (and structural change), Niger also needs to address the underlying societal characteristics of the labor market. Extremely high fertility and dramatically low human capital ratios result in an oversupply of poorly employable young workers, especially rural and women. This is another constraint to diversification as under these circumstances transition into the required minimum amounts of higher-skilled jobs will not happen. Instead, most Nigeriens remain primarily employed informally, as seasonal workers in low productivity and low-paid jobs; temporary migration is small and exclusive to men. Both conditions do not favor structural change and are not sufficient to lift people out of poverty, much less to let them build productive assets. Niger has two game-changers at hand: Bovines and onion exports can succeed, but only if drastic policy shifts are implemented in their regional and global value chains 20. As an agricultural seller, strengthening Niger’s participation in global value chains requires densification and economic upgrading to higher value added activities. Densification is about engaging more local actors (firms and workers) in its agricultural GVC network. This contributes to the overall goal of increasing a country’s value added as it creates spillovers across sectors and resilience to external shocks (likely to increase with greater export orientation, other things equal). In fact, this could even mean that performing lower value-added activities in on a large scale can generate large value-addition for the country. In turn, economic upgrading is about gaining competitiveness in higher value-added products, tasks and sectors. Three types of economic upgrading exist: (i) moving into more sophisticated products; (ii) increasing value-added shares in existing GVC tasks with technology; and (iii) moving into new value chains with higher value added shares. Thus, Niger’s policy makers and private investors need to decide which type of economic upgrading (products, functional, intersectoral) they want to pursue. A detailed menu of options is included in Table ES-1 below. 21. A detailed review of two products, onion and bovines, where Niger already has two emerging agricultural-based exports, shows that its current participation in global and regional value chains still is low and faces strong competition headwinds. Already located in low value added chain segments, both products are currently losing market share in traditional export markets such as Nigeria for bovines and Ghana for onions. These price sensitive countries are seeking to develop their own productions and implement higher standards and certification schemes. Competition is coming both from growing regional players such as Burkina Faso and global exporters such as Brazil, Holland and China. For both products price and non-price (quality, regularity of supply) factors are crucial in maintaining and increasing market shares, as well as penetrating new markets. 22. Lack of market diversification of Niger’s exports for both products is a missed opportunity. If Niger could export onions to non-European Union, Middle Eastern and African countries, it would generate USD 22 million more exports. Adding European and North American markets this could rise to USD 92 million. Likewise, Niger could export, de minimis, USD 8 million to the Middle East and Africa and over USD 29 million to Europe; these are low and feasible (but non-negligible) numbers when compared to the USD100 million in meat already exported to Nigeria. 23. And while the region is becoming increasingly competitive in bovine meat, Niger’s value chain still is largely informal and underdeveloped to be competitive. Niger’s bovine exports are seasonal, limited to live animals and only sold to Nigeria, which is upgrading its own livestock industry. Exports to Nigeria are declining and, following the naira devaluation, some traders there have started exporting to Niger. Niger’s bovine stock is high but off-taking remains low, and Niger does not meet its domestic dairy consumption needs. Challenges in the chain span all segments with animal quality, health, traceability and services being the major constraints to developing local markets and exports not only of live animals, but quality meat, dairy and leather. Actors and markets are not well organized and regulated, which creates opportunities for conflict, power struggles, leakage, smuggling and widespread informality of the chain. The lack of sanitation and poor conditions at the abattoirs are deeply problematic. 24. In a similar vein, Niger is losing regional market share and does not meet buyers’ standards in the onion market. Niger is the largest producer and exporter of onions in West Africa with domestic consumption at only about 5 percent of its production. All exports are regional and concentrated in the fresh onion segment. Niger’s Violet de Galmi is popular in regional markets for its taste qualities and is an important cash crop for producers. Onion exports are volatile, declining and losing market share due to strong competition from Senegal and cheaper Dutch and Chinese onion exports to Africa. Dried onion processing is limited to artisanal producers. Niger’s value chain actors are more organized than in the bovine chain but lack capacity, market information and are not aware of regional shifts and buyer requirements. The chain lacks private sector investment to upgrade toward higher value added activities. Constraints in the inputs and production segments such as lack of certified seeds, overuse of fertilizer and proper harvest and handling is impacting onion quality and spoilage. Overproduction and lack of appropriate handling and storage of onions contributes to market dumping, waste and lower prices during the onion main season. Inconsistent quality and lack of standards and certifications is also a major constraint to attracting investors in onion processing. 25. A comparison with African countries that are successfully upgrading in these segments, indicates that Niger requires three major interrelated efforts. These are to (i) improve quality and production standards to meet demand markets; (ii) implement certification schemes to enter higher value markets and compete for regional markets; and (iii) attract ‘game changer’ foreign investment by lead international firms entering higher value chain segments in Niger. To upgrade its RVCs and GVCs in bovine meat, Niger needs to improve animal health and services general conditions; upgrade the current certified private sector slaughterhouse and build capacity; attract investments in the slaughterhouse segment, after aligning Niger’s livestock with demand market standards; set and enforce standards; and develop a bovine to dairy cluster strategy to capture local market demand and leverage lead players. And to upgrade its value chains in onion, Niger needs to target seed quality, adopt standards, develop new “niche� markets and produc ts, and create and monitor modern market information systems. Implementing to succeed in 2035 26. Ultimately there is no magic universal recipe for an export diversification strategy, but Table ES-1 summarizes the menu of core complementary policies that would provide its fundamentals. Its key pre- requisites are: (i) A shared national vision that would provide clear goals; (ii) A strong policy commitment to liberalize trade policy; (iii) A clear, transparent and predictable business-friendly investment climate that facilitate adequate incentives to domestic and foreign private investors; (iv) Targeted investments in well selected infrastructure, connectivity and trade logistics to increase agricultural productivity and reduce trade costs; and (v) Effective Government coordinated interventions aiming at the identification, support and monitoring of “strategic bets� in terms of well selected Regional and Global Value Chains. Table ES-1: Summary of Key Policy Recommendation Objective Main Options for Consideration 1. Implementing a Trade-Prone Policy Simplify the trade regime • Review the distorted Customs tariff structure under a new ECOWAS roadmap for and accelerate its tariffs simplification in the next three years; to remove marginal border taxes/fees liberalization and NTB barriers and to appoint a monitoring body to design and follow up such reform. • Re-examine investment-promotion programs to make tax exemptions more effective. Public investment and promotion tools should focus on trade-related infrastructure, export services and support to value chains in emerging products. Develop bilateral Nigeria • Undertake a cost benefit assessment of reducing tariffs with Nigeria. free trade agreement. • Appoint a high-level negotiation committee to design and follow up such agreements. Increase foreign markets • Design a strategy for a marketing program appropriate for each strategic sector in in agricultural/livestock each regional and international market. products • Develop capabilities of the CCIAN, to gather commercial information. • Develop capabilities of commercial counsellors in respective overseas (Asian) missions. Implement the WTO-TFA • Establish the leadership agency to steer action plans under the TFA, including a mechanism for interagency coordination & public-private dialogue. Operationalize the • Expedite the harmonization of import and export documents among all relevant National Trade Single agencies and initiate business process re-engineering of all trade-related processes Window and procedures. Simplify border control • Streamline data entry by eliminating repetitive records. procedures • Delete systematic scanning by adopting risk management principles Streamline Customs • Introduce legislation allowing the simplification of documents and development of regulations and electronic transmission of transit declarations. procedures and • Develop informatics infrastructure and strengthen the centralized connectivity and accelerate automation all the offices of Customs, starting with those on the imports/exports and transits. Eliminate illegal fees and • Establish an effective reporting mechanism for traders facing road harassment. levies on trade corridors Promote a competitive • Implementing harmonized ECOWAS rules of access to and exercise of professions transport sector based on competence, training and the solvency of the companies. 2. Improving Sound Regulations for a Trade-Based Diversification Agenda Reduce the cost of SMEs • Set a low flat fee for SMEs registration. registration • Simplify procedures and reduce delays associated with fiscal obligations of the firm Improve tax services regarding the corporate tax, social security and VAT reimbursements procedures. Accelerate the delivery of • Adopt a building code based on best regional practices. construction permits • Fully implement SYDONIA WORLD allowing traders and custom brokers to Facilitate enter/track declarations and permitting users to register. trade • Complete transition to the risk management system. • Approve legal framework to effectively implement digital signatures. • Consider salary increases for key public service positions. Fight corruption in the • Implement effective enforcement of sanctions/penalties provided for by law in public administration cases of proven corruption, regardless of hierarchical rank and the quality of cause. Improve Corporate • Strengthen corporate governance duties of directors and management in Sociétés Governance Anonymes. • Introduce procurement rules specific to SMEs (i.e. quotas on the total public contracts) to enable them to submit individual or joint proposals Develop a • Implement the current action plan which calls for a new modern competition law Competition Policy and the establishment of a competition authority. Improve court effectiveness and • Train magistrates and develop a dedicated curriculum for law and business schools arbitration in commercial • Strengthen the technical capacity of the staff of the mediation center (CNAM) conflict resolution. 3. Fostering Existing and Future Product Export Capabilities Short term: Investing on existing industries Agricultural/livestock • Bovine meat, sesame seeds, onion, rice, dates, products Agro-processing • Pasta, infant foods, cereals, vegetable (palm) and animal oils Light manufacturing • Woven textiles and cotton Medium term: Developing products with higher value added capabilities Animal products • Leather and dairy (milk and cream) Agri-business • Fertilizers and hybrid seeds Textiles • Garments and higher complexity fabrics Services • ICT, travel and transport 4. Upgrading Bovine Meat and Onion Global Value Chains Competitiveness Abroad Bovine Meat Process upgrading • Increase productivity and health through animal welfare: vaccine, feed, water, traceability and hygiene standards. • Improve breeding including artificial insemination of livestock, reproductive flushing services and bovine testing stations. Product upgrading • Develop and enter higher value meat markets: fresh and frozen meats; and niche market products e.g. Halal, grain fed. • Improve producer and butcher skills and develop certifications. Functional upgrading • Develop and implement slaughterhouse certifications/inspection capacity. Market upgrading • Reach new end markets in Africa such as Algeria and Egypt by upgrading standards and meeting niche market standards e.g. Halal and Grain Fed meeat • Approve incentives for the dairy chain, a dairy cluster located outside Niamey and Chain upgrading for champions such as Niger Lait • Approve incentives for the leather chain encouraging processing and tannery startups, a leather cluster, and skills to produce high quality leather. Onion • Increase productivity through research, use of certified seeds, improved farming Process upgrading practices and better storage and logistics. • Adopt international quality and traceability standards. Product upgrading • Invest in production of dried onions and niche market products e.g. organic. • Develop certified onions production. • Increase adoption of smaller and better packing. Functional upgrading • Enter International market for certified products. • Reach new (niche) markets for exports and incentives for entrepreneurs. Market upgrading • Develop market monitoring information systems. Chapter 1 Why Export Diversification Matters to Niger 1.1 Diversification as a Top Priority for Niger’s Development 1. The vision of the Nigerien government is to make Niger a prosperous country by 2035. And by prosperous means not only a country whose economic growth is well above its population rate, i.e. on or above 6 percent; but is also inclusive with benefits reaching most of the population. The Economic Orientation Document (EOD), 2016-2019, is embodied in Niger’s Vision 2035 and its Economic and Social Development Plan (PDES). 2. Niger’s Vision 2035 acknowledges the country has little choice but to diversify its economy and sets “a competitive and diversified economy� as the cornerstone first pillar of the EOD. The EOD sees Niger’s economic diversification centered on moving exports away from natural resources as a central foundation for industrialization and employment creation. Such component complements other five pillars, namely: demographic control, human capital formation, job-creating and resilient rural development, reinvigorated private sector and security. Exports diversification appears pressing as over the next few years, and even if major planned investments were completed, Niger’s traditional export backbones--centered on oil and minerals production—are projected to stagnate or marginally improve, provided two foreign investments take place. On the one hand, the big Imouraren uranium project is temporarily stopped, waiting for prices to recover and a restructuring of its contract with AREVA firm. On the other hand, prospects for oil and gold output expansions are favorable but limited to the existing fields, unless new discoveries happen. Expanding the Agadem oil champ and developing the Tchad-Camerun pipeline for exporting its oil surplus require massive investments; and gold exports are affected by projected to decline prices in the medium term. And even under an unexpected high-case scenario featuring booming prices of these commodities again, the benefits from the development of extractive industries have proven to be limited in terms of job creation. This converts exports diversification into a long due risk mitigation development strategy. 3. Hence, a strategy of export diversification is akin to foster economic diversification. In fact, Niger’s Economic and Social Development Plan (PDES) and its seminal report Rennaissance 2017 define the axis of policy intervention supporting export diversification. In the PDES, these axes aim reforms in the (i) business climate; (ii) financial intermediation; (iii) basic infrastructure; (iv) sectoral development – manufacturing, mines, energy, artisan, commerce, services (transport and tourism); (v) regional integration; and (vi) youth employment (PDES, 2017). A total of 21 priority programs, targeting specific results indicators, support these axes. A more focused diversification component is depicted in Rennaissance (2017), whose four axis of intervention aim reforms in (i) agriculture modernization, with irrigation and new technologies playing a central role toward the production of higher value-added agricultural products and modern livestock systems organized under global value chains; (ii) large investments in key infrastructure —energy, water, transport-- located in geographic zones featuring potential in trade and productive activities; (iii) a reinvigorated business environment; and (iv) regional trade with its major partner Nigeria, and its neighbors Benin, Togo and Ghana. 27. Niger has four main reasons for diversifying its exports. First, its commodity-dependent development model is exhausted. Based on extractive industries, its growth model does not have the capacity to create enough employment for its staggering demographic boom: Over the past 35 years, Niger GDP per-capita has stagnated and performed well below its neighbors (Figure 1.1). With a total capacity to barely generate about 5,000 jobs (Rennaissance, 2016) —a meager 1 percent of the 500,000 jobs the country needs to generate per year--the extractive industry cannot absorb the youth labor force of the country with the fastest fertility rate (4 percent) in Africa. Second, its sectoral patterns show a very slow speed of structural transformation: Low-productive agriculture is expanding, manufacturing is stagnating 1 and services are declining, atypical of what is required for growth accelerations. Third, its domestic market is too small to attract a minimum of foreign investment in the quantities needed for nurturing non-mining private sector-led growth. Its private sector remains incipient: in 2015, per the Niger’s Chamber of Commerce, the formal private sector had about 6,523 enterprises, from which barely 205 were engaged in exporting activities. Fourth, as a typical “agricultural seller� country--using the taxonomy of global value chains (see Chapter 6)—the country naturally tends to specialize in upstream production of agricultural low-value added production. However, international experience shows that the risk for Niger to see its industries relocating abroad is higher if the country keeps specializing in low-value added activities. Figure 1.1. Contrary to its neighbors, Niger GDP per-capita has stagnated over 35 years Source: Niger SCD (2017). 4. Not surprisingly, Niger GDP per-capita growth is stagnating, confirming international experience proving that reliance on natural resource-generated wealth hardly achieves sustained growth accelerations and carries on multiple shortcomings: • Tendency to grow beyond potential in booming times (over-heating): In the initial phases of a commodity boom, domestic demand tends to grow too fast as its expansionary fiscal policy brings an inflationary impact. Additional spending affects both tradable and non-tradable. Added commodity production increases exports supply and, using their foreign exchange generated, it also serves to finance imports; while non-tradable also grow to satisfy excess domestic demand in the country. Hence, the commodity boom-generated demand for non-tradable comes accompanied by larger-than- usual current account deficits, thus overheating the economy. Some of these undesirable effects may be mitigated by fiscal buffers (fiscal rules, stabilization funds), but fiscal institutions are not yet enough strong among Western African Economic and Monetary Union (WAEMU) countries.1 • High GDP growth volatility. Commodity prices are very volatile, i.e. they have high standard deviations (often above 30% per year). Their terms of trade shocks tend to be persistent--if not structural as the present one--thus creating great uncertainty over the long run. This also makes resource-based GDP growth, whose profits tend to be more sensitive to the movement of the real exchange rate, highly volatile, also bringing non-resource based GDP to follow such pattern. This transmission mechanism is by itself another obstacle to diversification. To counter this, public spending needs to stabilize at some point and if possible rely on buffers, built especially during booming commodity prices. 1Under WAEMU’s agreed multilateral surveillance framework, Niger has committed to reach the regional convergence criterion of 3 percent of GDP for the overall fiscal deficit (including grants) by 2019. 2 • Dutch disease (and ensuing tendency to real exchange rate appreciation). Booms let the price of tradable goods to be pinned down by excess demand of imported goods, often at declining prices, i.e. an exchange rate appreciation that favors non-tradable sectors. The ensuing loss of competitiveness hits the tradable sectors, further hampering the potential for exports diversification and making non- tradable sectors (i.e. construction) more attractive. A continued real appreciation of the currency should be contained to preserve non-resource emerging exports competitiveness. • Growth biased toward rent seeking non-competitive activities. Government commodity-generated revenues tend to be allocated to priority sectors. Since this is often a non-transparent political process in which many vested interests participate, such allocation of resources often favor unproductive public investment in non-tradable activities rather than those needed to create value-added in tradable. 5. This introductory chapter explores Niger’s key challenges to diversification, options for diversifying its exports, their link to the country’s structural change dynamics and the underlying bottlenecks preventing it to accelerate. In doing so, it addresses the following four intertwined topics: (i) what structural challenges prevent Niger’s diversification; (ii) what options for exports diversification are open for Niger; (iii) where Niger stands in terms of structural change, the mirror feature of advanced levels of diversification; and (iv) what rationale is behind the headlines of its structural change dynamics. 1.2 Niger’s Structural Challenges to Achieve Economic Diversification 6. Niger’s diversification faces multiple structural challenges .2 These challenges do not prevent the country to export, but behave as major constraints to develop an export-led diversification strategy in the medium term and cannot simply be ignored (Figures 1.2 a-f). 7. As a landlocked country, Niger’s access to international markets is by all measures extremely costly. Any added cost due to inefficient transport markets, burdensome and outdated regulations and agencies, and inadequate infrastructure is like an added markup on all that Nigeriens consume in imported products and that firms produce for external markets. Niger benefits from access to several international trade corridors, but all of them represent distances farther than 1,000 km. The shortest distance —1,035 km—is between Niamey and Cotonou. It is the most important transit corridor and accounts for about 80 percent of the total traffic. Lomé is 1,240 km away and captures about 15 percent of the traffic. Other ports are farther away and represent a modest part of transit for Niger: Tema 1,500 km away, Abidjan 1,700 km away, and Lagos 1,525 km away. In the next decade, the volume of traffic to Niger is expected to more than double. A comparison in the region finds that Cotonou-Niamey has slightly lower costs per ton-km than other corridors. However, transit time still takes 21 days on average and is subject to high variance of up to 40 days. Cost and time of transit estimates suggest that reform could lower costs by 15 percent on average. 8. Its demographic trends are a major determinant of cheap labor force. Niger has a staggering 3.9 percent population growth rate in comparison to the Sub-Saharan average of 2.7 percent. This result is the combination of rapid reductions in maternal and infant mortality combined with high fertility rates. Maternal mortality, which is a good indicator of health system performance, remains slightly above the average for Sub-Saharan Africa (547 per 100,000 live births) in Niger. Trends in under-five mortality show Niger experiencing a steady decline. By contrast, fertility rates have remained generally high, with no change since 1990. Thus, not only life expectancy has risen by 9-18 years in Niger, but at these rates of population growth, its population will double in less than two decades. High population growth rates put enormous pressure on the job market, and tends to perpetuate low-productive agriculture through its 2 This section is based on World Bank (2017a, b). 3 increasing pressure on arable land, which constitutes only 12 percent of Niger’s land mass, water, and forestry resources. Figure 1.2. Structural challenges to economic diversification a. Niger is landlocked, exporting (transport) b. Rapid population growth puts a strain on job creation costs are high, and access to markets is hard and natural (and public) resources. beyond neighboring regional ones (Nigeria). $543 $490 $486 Cost of exporting Population 20,000,000 $204 18,000,000 $191 16,000,000 $175 $163 $155 $144 $143 14,000,000 $111 $96 $86 12,000,000 $33 $25 10,000,000 $17 8,000,000 6,000,000 Niger Ghana Togo Niger Ghana Togo Senegal Kenya Mali Kenya Senegal Ethiopia Ethiopia Mali Burkina Faso Burkina Faso 4,000,000 2,000,000 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Cost to export: Border compliance (US$ per Cost to export: Documentary compliance (US$ c. Human capital is low. Malnutrition is d. Niger’s growth has featured wide booms and busts, widespread and levels of education, though due largely to the fact that the economy is not sectoral improving, are extremely low, particularly diversified, reliant on rainfall and the price of uranium. Rainfall and GDP growth among rural, female and older populations. Completed levels of education 200 15 None Primary Secondary - first cycle Secondary - second cycle and above 10 Difference in rainfall (mm) 100% 4.4 1.8 0.54 3.5 3.6 2.3 2.1 1.5 2.7 3 100 6.8 13 5.74 6.1 5.2 3.2 3.2 9.5 12.6 10.6 11.02 18.6 13.7 10.7 8.3 5 GDP growth rate 80% 12.9 15.5 24.65 0 17.7 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 60% 20.35 -5 92.6 -100 40% 80.8 82.7 81.8 86.4 76.6 74.6 67.5 60.2 -10 20% 42 -200 -15 0% -300 -20 Male Female Urban Rural 15-24 25-34 35-44 45-54 55-64 Total Rainfall GDP growth Poly. (Rainfall) Poly. (GDP growth) e. Low uranium prices put pressure on exports f. Current account deficits are much wider in Niger than in and state finances. WAEMU region, the public savings-to-investment gap is larger than the private gap. Drivers of the Current Account (in percent of GDP) 0 Uranium price (US$ per pound) 140 -5 120 -10 -6 -6.3 -5.2 -6 -6.2 100 -15 80 60 -20 -15.5 -15.4 40 -18.4 -19.4 -18.1 -25 20 WAEMU Niger WAEMU Niger WAEMU Niger WAEMU Niger WAEMU Niger 2102 2013 2014 2015 2016 0 Public S-I Gap Private S-I Ggap Current Account Deficit (indicated below bar) Mar-86 Mar-90 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Jul-87 Jul-91 Jul-95 Jul-99 Jul-03 Jul-07 Jul-11 Jul-15 Nov-88 Nov-92 Nov-96 Nov-00 Nov-04 Nov-08 Nov-12 Source: Rainfall: http://www.cameroon.climatemps.com/; Education Living Standards Measurement Study - Integrated Surveys on Agriculture (LSMS-ISA) 2011; exports: Doing Business (DB) 2016; population: WDI 2016; uranium price: IMF 2016. 9. Rapid demography tends to perpetuate a weak human capital base and a largely unskilled labor force, which severely limits its economic opportunities. The stock of human capital is low particularly 4 among rural, female and older population, and despite significant progress in school enrollment. In 2011, gross secondary school enrollment was around 13 percent compared to 35 percent in comparator countries and Niger badly lacks people with higher education. There were only 22,000 university students in such year, most of whom were enrolled in humanities courses. Apart from the low numbers, the quality of the education system is very weak. Unable to produce a minimum labor force that is highly skilled and mobile. Informality is massive, especially in the rural sector, and even basic jobs in electricity, repairs, plumbing, or services are left to better-educated foreigners. 10. Niger’s growth remains dependent on the vagaries of the weather and, to a lesser extent, changes in uranium and gold prices. Weak growth mainly determined by agriculture was affected by several years of drought in the early 1970s and the oil crisis. In the late 1970s, growth resumed led by an expansion of uranium exports until its prices collapsed again in the early 1980s. Its combination with other years of severe drought in the mid-1980s and early 1990s led to yet another period of economic slowdown which went hand in hand with political instability, a banking crisis, and a sharp devaluation of the currency in 1994. Only the past 15 years have been marked by average and less volatile growth aided by favorable commodity prices, and more favorable rains. 11. The country’s exports are undiversified, mainly concentrated in uranium and, to a lesser extent gold and live animals. Uranium is the main export commodity, that fell from 70 percent of total exports in 2011, to a share that almost halved to 36 percent in 2016 following the slump in prices. Uranium also represent about 10 percent of total public revenue. Gold is Niger’s second largest export product followed by live animals—cows, sheep, and goats which are mostly sold to Nigeria and Chad. In 2012, the year with more recent reliable estimates available, Niger exported more than 1 million head each of sheep and goats and over 425,000 head of cattle. Largely unrecorded, this represented less than 10 percent of their total estimated value of exports. Fuel product exports declined from 26 percent of total exports in 2013 to 16 percent in 2016 due to the decline in oil prices. Food goods comprise the main imports, almost 20 percent of total imports in 2016. Niger is structurally food deficient, suggesting a potential market for domestic production provided productivity in agriculture can be raised. In contrast, driven by the recent boom in public investment, capital goods comprised about 30 percent of total imports in 2016. 12. Raising savings to sustain high public investment growth rates is a major challenge for Niger. Low national (and domestic) savings are reflected in double digit (and wide) current account deficits. In the last five years, Niger has featured a current account deficit that is about 3 times higher than the one of WAEMU countries. Both the private and the public savings-to-investment gaps are much larger for Niger than for the average ratios in WAEMU countries. As key drivers of the current account, this points to the urgent need for raising domestic resources—tax and non-tax revenue—as they remain the dominant source of financing for infrastructure. This would require not only improving tax collection but encouraging greater private savings and financial depth, and enhanced private sector participation in infrastructure. Raising revenue is priority to boost public investment and foster private investment as investment growth in Niger severely fell by about 5 percentage points of GDP in 2016 with respect to 2015, which unless reversed may have implications on growth slowdown in the coming years.3 13. Furthermore, Niger’s growth patterns should also be taken into consideration when facing its structural challenges. If anything beyond its volatility characterizes Niger’s economy, it is its resistance to change. Assessing these factors is critical for understanding its diversifying trends (Figures 1.3 a-f). 3Public investment efficiency is also an issue in Niger as the correlation between public and private investment ratios (a measure of their complementarity/substitution) for Niger over 1970-2015 was mildly negative at -0.1. And even if their degree of substitutability is very small, this also points out to a familiar crowding out effect in Niger (World Bank, 2017c). 5 Figure 1.3. Stylized facts about GDP growth and the external sector a. The economy is dominated by the primary sector b. On the factors’ side, major contributions to recent (agriculture) and the secondary (extractives) showing growth come from small increases in TFP and, to a little evidence of industrialization. Services are declining. lesser extent, physical and human capital. Sectoral distrbution of GDP (%) 5.0 Growth Accounting 1974-2011 4.0 100 4.0 3.5 90 3.0 2.6 80 42 42 39 39 41 37 38 38 38 46 44 43 42 45 43 42 2.2 2.1 70 1.9 2.0 2.0 60 11 12 17 0.9 12 12 12 13 18 17 16 0.6 0.6 50 13 13 13 13 12 1.0 0.5 13 0.3 0.1 0.1 0.3 0.3 40 0.0 30 GDP Growth Labor Capital Human Capital TFP 45 46 47 50 46 49 46 47 46 45 20 41 43 44 42 44 45 -1.0 -0.6 -0.5 10 -0.1 0 -2.0 2000 2005 2010 2015 -3.0 -2.7 Primary sector Secondary sector Tertiary sector 70-79 80-94 95-04 05-11 -4.0 c. Growth is driven by agriculture, which does the major d. Niger agricultural TFP growth rates have been recent contributions to growth, followed by services and negative or very small in past decades, below those of oil. The contribution of industry is very small. its neighbors, pointing to low agriculture productivity. Average Annual TFP Growth in Mali and neighboring SAHEL Contributions to Growth (supply side %) 0.0300 Countries 20.0 0.0200 15.0 0.0100 10.0 0.0000 5.0 -0.0100 0.0 -0.0200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -5.0 -0.0300 -10.0 -0.0400 Agriculture Uranium Oil -0.0500 1961-70 1971-80 1981-90 1991-00 2001-10 2001-12 2003-12 Industry Services Taxes Burkina Faso Gambia Mali Mauritania Niger Senegal GDP e. Agriculture makes up the largest share of employment. f. Mining products comprise the bulk of exports. Exports by group of products Employment Share and Value Added, 2015 100% 80 Value Added (% of GDP) Employment (% of Total) 90% 70 80% 60 70% 50 60% 40 30 50% 20 40% 10 30% 0 20% 10% 0% 2011 2012 2013 2014 2015e Food Livestock Mining Petroleum Services Source: IMF 2016, Government of Niger, WDI 2016, Bank Staff estimates. Note: TFP = Total Factor Productivity. 6 14. The sectoral composition of GDP remained fundamentally unchanged in the past 15 years, except for a rising mining sector. In 2015, the primary sector continued to account for about 45 percent of GDP. Within the primary sector, agriculture was the main economic activity with a share of 27 percent of GDP. Livestock with 10 percent of GDP was also an important source of revenue and a key source of wealth for households. Manufacturing (6 percent of GDP), construction and public works (3 percent of GDP), and production of electricity gas and water (1 percent of GDP) remain relatively small and underdeveloped. Such stagnating manufacturing share is about half the Sub-Saharan African (SSA) average and it remains essentially concentrated on agri-food, textiles and leather products. For their part, services showed a puzzling declining trend reflecting the slow modernization of the economy and widespread informality. Commerce, transport and the public sector represented the most important activities in the tertiary sector with shares of 12 percent of GDP respectively. Telecommunications was small but had the fastest growth in the tertiary sector (12 percent growth per annum on average between 2007 and 2016), followed by the public sector which increased 9 percent per annum over the same period. 15. Agriculture remains the main contributor to growth in the economy, and extractives the most dynamic one, but both sectors feature high variability for different reasons. On the one hand, rainfall is a core determinant of its output and productivity. Annual variation in rainfall is strongly correlated with annual cereal production. Moreover, inadequate yields, poor diversification of incomes, climate change, and increasing pressure on land due to population growth are other reasons why economic and food insecurity persist and make Niger a net importer of food. On the other hand, Niger also has significant mineral wealth with deposits of uranium, gold, coal, and recently crude oil being commercially exploited but relying on the vagaries of commodity prices. Such wealth led the share of the extractive sector in GDP to increase over the past 15 years. 16. A growth accounting exercise shows that increases in labor accumulation have driven most growth in Niger, followed by increases in the capital stock. This is in line with the country’s high population growth and, more recently, increases in public and private investments in infrastructure and extractives. However, there is little embedded technical change in these investments and overall productivity, measured by TFP, is quite small and barely catching up from a large decline in the 1980s-to-mid 1990s. Other components, particularly changes in human capital, play a much smaller role in driving growth. The latter is unsurprising given the low quality of education. In the same vein, Niger agricultural TFP growth rates have been either negative or very small in past decades, well below those of its neighbors, pointing to an extremely low agriculture productivity. Furthermore, data on value added and employment shares suggest that labor productivity in agriculture is very low compared to the industrial and service sectors. Agriculture employs about 80 percent of the labor force (and close to 100 percent of it is considered as informal). 17. While mining products dominate exports, some agricultural and livestock products are emerging. On the extractives side, Uranium has been mined since the 1960s by companies dominated by French capital. Uranium production is expanding and once the Imouraren mine in the Agadez region becomes operational (originally expected in 2016, but now postponed to 2020 following the fall in uranium prices), Niger is projected to become the world’s second largest supplier of the metal.4 Other two resource-based products have limited potential. Gold production has only increased in recent years as Niger’s first commercial gold mine only began operating in 2004. And oil production by a Chinese company--the China National Petroleum Corporation (CNPC)--extracted the first barrels in 2012. However, based on studies done in 2014, the Government of Niger has issued a 2015 export-oriented trade policy strategy. Such strategy identifies 11 emerging agro-filières that through their potential value chain linkages with industry 4Others are also investing in uranium. GoviEx, a Canadian firm, got an exploitation license in January 2016 to exploit the Madaouela Mine not far from the Arlit Mine. 7 and services have exports-potential (including onion, beef meat, beans, poivrons, ail, potato, mandinga, as well as livestock).5 The export potential of these products is assessed below (see Chapter V). 1.3 Options for Export Diversification 18. There is no single export diversification strategy that fits any country, which presents Niger with many options among multiple non-exclusive avenues. Based on the lessons from international experience, a clear typology of economic diversification helps define what policy choices the country has. Such typology distinguishes the ultimate objective of alternative diversification strategies and how they might apply to Niger, options that the Nigerien Government may consider in its own design. Literature on economic diversification is extensive (see details in Annex on Chapter I —Volume II) Figure 1.4. The ladder of export diversification Sectoral (sectors exporting non-resource products of higher value-added content) Product-based (exporting pilot emerging higher value added products) Extensive Margin (exporting the existing products to new non traditional-markets) Intensive Margin (exporting more of the existing non-traditional products) 19. Niger aims for a non-natural resource-based export diversification strategy, but such strategy can be decomposed into four steps (stages) of the so-called “ladder of export diversification� (Figure 1.4). In the first step, a country exports more of what it already produces (so-called growth in its « intensive margin [IM]»). In the second step, the country exports what it produces to an increased number of markets (so-called growth in its « extensive margin [EM] »). In the third step, the country moves to new, and often pilot, higher value-added products. This is the case, when countries target the promotion of few non- traditional emerging products (also called « strategic bets »), including agri-based. In so doing, this leads to less export concentration on a limited basket of commodities in the medium term. Finally, in the fourth step, emerging new higher value-added export goods (and services) lead to the decomposition of sectoral outputs in favor of the increased production of new non-resource-based products, thus modifying the sectoral structure of the economy (the so-called « sectoral diversification »). The accompanying mirror shift of labor force moving from the low- to high-productivity sectors is known as « structural change» (see Section IV and Annex on Chapter I). 1.4 Diversification and Structural Change Dynamics6 20. Several African countries, like Niger, have formulated plans with the goal of achieving middle- income status by 2035, which requires, inter alia, an acceleration of their processes of structural change, 5 The strategy has also selected 8 sectors potentially benefiting from an active industrial policy: petrochimie (engrais and fertilizants), pharmaceuticals, agro-food, electrical parts, mechanical parts and metals, and TIC. 6 This section is based on Daki and Lopez-Calix (2017) background paper for this study. 8 the mirror pattern to diversification. This section deals with two major questions that are at the core of sectoral diversification options: Is Niger de-industrializing? And in relation to that, how much of Niger’s economic growth can be explained over the past decades by its so-called “structural change�, i.e. the dynamic reallocation of labor from less productive sectors to those with higher productivity? On the first question, Niger’s appears significantly under-industrialized and stagnating, the latest being paradoxically a slightly better outcome than the average declining trend in the manufacturing share to GDP in SSA. On the second question, about one-third of Niger’s growth per-capita since the 1990s is explained by structural change. Again, contrary to a seemingly SSA regional pattern, structural change is indeed happening in Niger’s economy, albeit very slowly. 21. Both processes, industrialization and structural change, are associated. Both processes tend to converge as countries that have managed to attain high levels of structural transformation have also been characterized by the reallocation of labor and other resources towards modern activities, often located in manufacturing or modern services, which leads to a general increase in productivity and income levels. The speed at which this structural transformation occurs, however, is an important determinant of the success of the process (McMillan et al. 2014). Hence, during the 1970s and 1980s, countries in East Asia successfully transformed their economies from agrarian to manufacturing economies. In contrast, SSA economies like Niger typically specialized in agriculture and developed mining activities. And in doing so, their structural transformation emphasizing generation of economies of scale, adoption of new technologies, and the development of capabilities in production, investment and innovation centered in manufacturing also occurred but at a very slow speed. Figure 1.5. Manufacturing's share of GDP (value added, %) 14 12 10 8 6 4 Niger Sub-Saharan Africa 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: WDI and Niger INS. 22. Whereas many SSA economies are de-industrializing, Niger ‘s industrialization is rather stagnating. The pattern of structural transformation tends to be associated with a hump-shaped curve for manufacturing output (as a fraction of GDP). However, the turning point seems occurring at much lower levels of income for developing countries, such that their decline in manufacturing begins at levels of income that are a fraction of those at which advanced economies start to de-industrialize. Thus, developing countries transition into service economies earlier than developed ones, a phenomenon that is referred to as premature de-industrialization. This is the case of many SSA countries that have experienced a decline in manufacturing shares in both employment and real value added since the 1980s. As policy response, a familiar argument has been made that their prospects for diversification still depends critically on fostering new manufacturing industries (Rodrik, 2016, PDES, 2017). In the case of Niger, its manufacturing share of GDP has kept oscillating around 6 percent for a long period, with a mild but temporary increase between 2011 and 2015 (Figure 1.5). 9 Output, productivity and employment patterns in historical perspective 23. In real terms, Niger’s total GDP gross value added (GVA) increased nearly three-fold between 1990 and 2015 (see detailed patterns displayed in Table A1.1 in Chapter II and Figure 1.6): • Agriculture, and to a lesser extent commerce, were the main contributors to GVA in this period. Agriculture contributed with 45.8 percent of total GVA in 2015, and experienced a non-negligible average yearly growth of 4.8 percent during the entire period. • Looking more recently at the 2010 to 2015 period, mining and quarrying experienced the highest average growth (17 percent), followed by government services (10.9 percent) and a mildly reinvigorated manufacturing (10 percent). While overall demographic trends showing a widening youth population, with persons less than 14 years of age making up more than half of the population in 2015, only a mild demographic shift occur from rural to urban populations, with the majority (80 percent) remaining in rural areas and thus confirming the big challenge of employment creation centered in agriculture. Main features on sectoral composition of employment and growth rates follow in Table A1.2 in Annex Chapter I and Figure 1.7. • While in absolute terms, agriculture created the largest number of jobs, in terms of total employment, its share declined slightly from 82.9 percent in 1990 to 79.9 percent in 2015. 24. Average growth rates in employment varied by sector. Agriculture had one of the lowest rates (1 percent average per year), mining and quarrying having the highest rates--grew by an average of 3.9 percent over the full period (and of 9.9 percent between 2010 and 2015) —and public utilities growing at an average of 4.4 percent over the full period (and 6.2 percent between 2010 and 2015). Likewise, government services employment grew by an average 3.6 percent over the full period (and 5.9 percent between 2010 and 2015). Previous figures allow to estimate trends in labor productivity and show that overall labor productivity nearly doubled between 1990 and 2015, with an average yearly growth rate of 2.7 percent. 25. Labor productivity patterns varied per sector. In absolute terms, over the entire and most recent, 2010-15 periods, except for government services, mining and quarrying had the highest labor productivity, followed by public utilities and construction; whereas agriculture had the lowest labor productivity. In relative terms, however, over the entire period, agriculture labor productivity followed by wholesale and retail trade (informality) had the highest average growth rates, even though modest and coming from very low bases. In contrast, public utilities, mining and quarrying and government services had lowest (and negative) average growth rates. (Table A1.3 in Annex Chapter I). 26. The previous detailed overview of labor productivity and its components already allows to infer that structural transformation in Niger was accompanied by mild labor movements from low to high productivity sectors. To illustrate this, Figure 1.8 plots the changes in employment shares between 1990 and 2015, against each sector productivity, as measured by the log of the share of sectoral productivity in total productivity in 1990. The path of structural change of Niger locates agriculture and wholesale trade (characterized by low productivity and declining labor share) in the bottom left quadrant; and the relatively more dynamic sectors, government services and mining and quarrying (characterized by high productivity and a rising labor share) in the top-right quadrant. Hence, when Niger’s labor force has left agriculture, it has predominantly moved into community services (basically education and health workers), and only to a lesser extent, manufacturing and transport services that observed small productivity improvements. The latest shifts are positive, but still small. Needless to say, that the impact on overall productivity (and ultimately growth) would have been much stronger if labor had relocated to more productive sectors than 10 both government services and mining and quarrying, which for different reasons (lack of fiscal space and commodity price slumps) seem to have reached a ceiling in terms of their potential for job creation. Figure 1.6. GVA by sector, 1990–2015 (CAGR) (Percent of Total GVA) Government Services Government Services Community, Social, & Personal Services Community, Social, and Personal Services Finance, Insurance, Real Estate & Business Services Finance, Insurance, Real Estate and Business Services Transport, Storage, & Communication Transport, Storage, and Communication Wholsesale and Retail Trade, Hotels, & Restaurants Wholsesale and Retail Trade, Hotels, and Restaurants Construction Construction Public Utilities (Electricity, Gas, and Water) Public Utilities (Electricity, Gas, and Water) Manufacturing Manufacturing Mining and Quarrying Mining and Quarrying Agriculture, Hunting, Forestry, and Fishing Agriculture, Hunting, Forestry, and Fishing 0.0 1.0 2.0 3.0 4.0 5.0 0 10 20 30 40 Figure 1.7. Share of employment by sector (Ave. share, 1990-2015) (CAGR, 1990-2015) Agriculture, Hunting, Forestry, and Government Services Fishing Mining and Quarrying Community, Social, and Personal Services Manufacturing Finance, Insurance, Real Estate and Business Services Public Utilities (Electricity, Gas, and Water) Transport, Storage, and Construction Communication Wholsesale and Retail Trade, Hotels, Wholsesale and Retail Trade, Hotels, and Restaurants and Restaurants Transport, Storage, and Construction Communication Public Utilities (Electricity, Gas, and Finance, Insurance, Real Estate and Business Services Water) Community, Social, and Personal Manufacturing Services Government Services Mining and Quarrying Agriculture, Hunting, Forestry, and Fishing 0 1 2 3 4 5 Source: Daki and Lopez-Calix (2017)’s estimates Disentangling structural change in Niger 27. This section assesses the pace and type of structural change in Niger over the period 1990-2015. We focus on this period for two reasons: First, this is the most recent period, where data are available and important changes occurred. Second, this is the same period covered by a larger sample of developing countries available in Groningen Growth and Development Centers —Africa Sector database. Such comparison explores whether there is a common pattern of structural change for Niger across different periods; and whether it differs from regional patterns, including those corresponding to SSA. The distinction between labor movements across and within sectors is explained by the method and formula contained in Annex AI.A. 11 Figure 1.8. Correlation sector productivity and change in employment (1990–2015) Source: Daki and Lopez-Calix (2017)’s calculations. Note: Size of circle represents employment share in 1990; agr= agriculture; min=mining and quarrying; man=manufacturing; pu=public utilities; con= construction; wrt=wholesale and retail trade, hotels and restaurants; tsc=transport and telecommunications; fire=finance, insurance and real estate; csps=community, social and personal services; ps= government services. β = coeff. of independent variable in regression. ln(p/P) = α + βΔEmp. Share. 28. Results show that aggregate labor productivity grew on average 2.7 percent per annun between 1990 and 2015, but with significantly higher growth between 2010 and 2015, because of the impulse given by the surge of the oil extractive industry. On a rising trend, labor productivity grew from 1.3 percent annually between 1990-2000 to 4.4 percent annually between 2010-15. While structural change accounted for about half of labor productivity growth in 1990-2000, it started to become a drag in 2000-10, where it accounted for about one fifth, and ended at about 30 percent in 2010-15. Overall, structural change accounted by about 30 percent on the entire period (Figure 1.9). 29. Niger’s pattern of structural change differs from the one for the average SSA country. When results based on regional averages for four groups of countries—Latin America (LAC), High Income (HI), SSA and Asia—are presented, it is possible to corroborate that Niger’s labor productivity decomposition differs from the one corresponding to other regions or its neighbors (Figure 1.10).7 From those findings, Asia is the region where the contribution of structural change had been biggest.8 30. In calibrating these results, a first final caveat applies: the above computations do not fully consider unemployment and under-employment rates, but mirror their trends. Niger’s pattern of structural change is consistent with informality trends, which reflects a rapid rise of unemployment and underemployment rates in low-productive activities. Figure 1.11 shows the dominant high levels of informality in most economic sectors, excepting those with mildly declining rates (and parallel rising labor productivity) in government services and public utilities and, to a lesser extent, mining and community, social and personal services (the latter being dominated by teachers and health workers). 7 The sample of African countries studied in McMillan et al. (2014) includes nine--mostly English speaking--countries: Ethiopia, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa and Zambia. Our findings, however, corroborate those for other African countries that also differ from the seemingly representative African regional pattern, including Nigeria and Zambia (for certain sub-periods) and Tanzania (Haile, 2016). 8 The results for Niger are not exactly comparable to those of the regions because we applied a slightly different base period and per-capita figures when computing the decomposition used in McMillan et al. (2014). 12 Figure 1.9. Decomposition of labor productivity Figure 1.10. Decomposition of labor productivity growth growth, 1990-2015 across world regions, 1990-2005 (Niger, 1990-15) LAC 2010 to 2015 Africa 2000 to 2010 ‘‘within� component of productivity growth Asia Structural change 1990 to 2000 "Within" (%) "Structural" (%) High Income 1990 to 2015 Niger 0.0 1.0 2.0 3.0 4.0 5.0 6.0 -2 -1 0 1 2 3 4 5 Percentage Source: Daki and Lopez-Calix (2017)’s estimates. 31. A second and final caveat is that having a large surplus of workers in agriculture should not be considered as a handicap for structural change per se. In fact, countries that do start their process of structural change with abundant available labor force like Niger, do have a common initial condition: Many unskilled workers prepare for moving into relatively more productive activities than subsistence, like agri- business industrialization or services. Hence, what really matters on the demand side is the capacity of the economy to generate abundant employment in more productive and less-traditional (exporting) activities. The speed of structural change (and diversification) is thus determined by the dynamics of job-creation in other than mining activities. 1.5 Behind the Headlines of Niger’s Structural Change 32. The slow speed of Niger’s structural diversification (and change) finds its deeper roots in the underlying characteristics of its workforce, mainly rural, and the specific microeconomic constraints that prevent a smooth transition from non-wage to better remunerated, but limited, wage activities. Based on most recent household surveys carried on with the support of the World Bank in 2011 and 2014, this section underscores the most important features of the country’s employment structure—global and at the household level--that explain such dynamics.9 Economic growth only partially translates into improved income earnings at the household level due to a few characteristics of the labor force that are detrimental to structural change. Niger has some of the most problematic ratios in this regard worldwide. These are summarized in Box 1.1 and explained in more detail below. 33. On the supply side, the outcomes of these characteristics are an extremely high fertility and dramatically low human capital ratios, detrimental for the possibility of young workers, especially rural and women, for participating and transitioning in the labor force. With an average fertility rate of 7.6 children per woman, the ensuing large population growth not only poses serious challenges in terms of health, nutrition, education and basic infrastructure services, but also of job creation. Above 4 out of 6 children 9 This section is based on World Bank (2017d). 13 are already at work before reaching 14 years old.10 And 6 out of 10 girls get married before they reach age 18. Thus, most of such population (70 percent) must work at a very early age or get married; which prevents it to do basic schooling and condemns it to remain in low productive jobs and subsistence agriculture. Figure 1.11. Labor force decomposition between formal and informal sector 2015 total 2006 2015 gs 2006 2015 fire csps 2006 2015 2006 2015 tsc 2006 2015 wrt formal 2006 2015 informal con 2006 2015 pu 2006 2015 min man 2006 2015 2006 2015 agr 2006 0% 20% 40% 60% 80% 100% Source: Daki and Lopez-Calix (2017)’s estimates based on official INS data. Note: agr= agriculture; min=mining and quarrying; man=manufacturing; pu=public utilities; con=construction; wrt=wholesale and retail trade, hotels and restaurants; tsc=transport and telecommunications; fire=finance, insurance and real estate; csps=community, social and personal services; ps= government services. 34. On the demand side, with approximately 8 out of 10 workers employed in agriculture, compared to 4 percent employed in the non-agriculture wage sector and to barely 1 percent of wage workers employed in the extractive sector, employment trends in Niger largely rely on the performance of the agriculture sector under different modalities. Subsistence agriculture with no or little remuneration is massive: A large share of workers in agriculture (40 percent) works as family aide and as such does not receive any remuneration that allows it to accumulate assets. Then, as an average, earnings in agriculture are nearly one-third lower than in non-agriculture self-employment and more than one tenth lower than in the non-agriculture wage sector. Most Nigerians (70 percent) are primarily employed as seasonal workers in low productivity and badly remunerated jobs, certainly not sufficient to lift people out of poverty, and much less to let them build productive assets. Only about a quarter of workers have a second job, and not surprising, temporary migration is small and exclusive among men.11 The public sector, followed by the extractive activities and finance/real estate offers best earning opportunities (Figure 1.12). 10 The negative impact of working at an early age is deeper in rural areas: child labor is common in 97 percent of total children. 11 This is how societal (cultural) norms may play an important role in women’s labor market decisions. And regarding migration, there are geographic variations. For instance, 77 percent of individuals from Diffa are most likely to stay in Diffa, while individuals living in Zinder and Marandi are relatively more likely to migrate temporarily to a neighboring country. 14 Box 1.1. Main features in the labor market detrimental to structural change • Youth labor force. 56% of the population in Niger is below 15 years old, the largest share of all comparator African countries. More than 500,000 youth enter the labor force every year. • Very low schooling. 70% of Nigeriens (mostly rural) have not completed any level of schooling, but young generations are more likely (40% of 15-24-year-old) to be in school than old generations (7% of 55-64-year-old). • Non-wage dominance in agriculture. 81% of employed Nigeriens work in agriculture; only 7-20% of people engaged in non- agricultural work report having a secondary occupation in agriculture; and 42% of agricultural workers report earning zero income, which prevent them to accumulate any wage-based assets. • Large sectoral earnings disparity. Barely 4% of employed Nigeriens work in the non-agriculture wage sector, with earnings above 10 times higher than in agriculture. The extractive sector has highest wages, but employs 1% of the wage workers. • Widespread job seasonality. Barely 26% of employed Nigeriens have a secondary occupation; but 70% are seasonal workers. • Dominant early marriage among girls. 60% of girls have been married at age 18, against 2% of boys. • Gender biased earnings. 34% of Nigerien women are out of the labor force (compared to 10% of men); those working are employed on average for fewer hours (28 vs. 43) than men and receive lower earnings. Source: The World Bank (2017d). Figure 1.12. Monthly earnings (FCFA) and % of the workforce in the wage sector (2011) 400,000 25% 300,000 20% 20% 15% 15% 200,000 11% 14% 15% 10% 100,000 8% 6% 1% 1% 3% 4% 5% 0 0% 2% 0% Median monthly earnings in FCFA (only earnings>0) % workforce in the wage sector Source: The World Bank 2017d. 35. In sum, the employment dynamics resulting from Niger’s specific labor market characteristics makes diversification away from agricultural activities into scarce non-agricultural wage and urban self- employment activities extremely hard. To understand better this process, it is worth highlighting some additional features of labor market dynamics, based on the household surveys done in 2011 and 2014. • In general, labor between these 2 years appears moving in the opposite direction to structural change, i.e. from more productive to less productive activities, but this shift may be temporary due a seasonal factor that attract temporary workers to agriculture under a seasonally high labor demand.12 • Whereas access to quality jobs is biased against women, whose share employed in agriculture increased, the share of low quality jobs in agriculture has also increased. • Interestingly, an increasing share of the individuals migrated to work (about one-fourth) and rural men appear significantly more likely to migrate (Table A1.4 in Annex Chapter I). Working migrants are wealthier than non-migrants and the number of working migrants located in the upper quintile increased from 23.1 percent to 29.1 percent. • Finally, intergenerational mobility, another concept closely linked to structural change, also appears positive. This concept determines the intergenerational flows between the farm and non-farm sector, i.e. the share of younger workers moving out of agriculture over time. Given than children are increasingly better educated than their parents, especially among urban ones, this is evidence supporting positive prospects to observe future rising migration patterns in Niger. 12 Findings do not support structural change between 2011 and 2014 in Niger, but surveys timing might have affected results. 15 Chapter 2 Niger’s Trade Diagnostics and Facilitation Policies for Diversification13 2.1 Niger’s Trade Features and Outcomes 36. Trade is key to economic diversification and growth. Trade enables countries to import ideas and technologies, realize comparative advantages and economies of scale, and foster competition and innovation, which in turn increase productivity and achieve higher sustainable employment and economic growth. It is widely accepted that countries have experienced sustained periods of high economic growth have done so by being open to global markets. Niger’s exports have experienced an uneven growth in a narrow range of products. If Niger is to raise economic growth rates to the levels necessary to make major inroads on poverty, and reduce its aid dependence, it must expand and diversify its export portfolio. 44. Multiple factors need to be considered in assessing Niger’s prospects for trade integration and diversification. First, Niger is a landlocked country in West Africa, which has common borders with seven countries: in the North with Algeria and Libya, in the East with Chad, to the south with the Nigeria and Benin, and to the West with the Burkina Faso and Mali. Second, Niger’s trade patterns present something of a dichotomy: Formal trade flows are dominated by exports of mining products, including uranium, petroleum, and gold, mostly to Europe, and imports of consumer goods and manufactures. Most of Niger’s enterprises and jobs are in the sectors of its major exports. In contrast, Niger is largely an agrarian economy and much of its related trade--namely agricultural products and livestock--is informal and unrecorded. Third, its main trading partner is Nigeria, from which it buys grains and to which it sells food livestock, and critically, re-exports transported inland, which includes many agricultural products exchanged informally over their long common border. As the border region has been afflicted with attacks by violent groups, Boko Haram in particular, which seize livestock and other assets and interfere with cooperative trade, maintaining security is a vital service required for sustaining part of Niger’s agricultural trade. Fourth, published trade data are subject to anomalies (Box 2.1). Box 2.1. Caveats of using published trade data on Niger Hoffmann and others (2015), describing the economic activity of border markets between Niger and Nigeria, estimate that the volumes of commodities traded informally between Nigeria, Niger and the rest of Sahara-Sahelian region dwarf those of formal trade. Even though Nigeria is Niger’s largest trading partner, it was only the 9th official supplier to Niger with approximately US$ 65 million in bilateral exports. Exact amounts of informal trade are difficult to estimate (Raballand et al., 2017). However, a recently surveyed border traffic with Algeria is illustrative. Based on a survey at the borders with Niger, Bensassi and others (2017) estimate that, in 2011, approximately US$ 65 million of imports entered Niger (including formal transit to Nigeria) from Algeria. However, Niger officially declared imports of less than US$15 million. The informality of trade affects both Niger’s exports -- including mostly food and livestock but also re-exports transited through Niger -- and imports, including much in the category of subsidized petroleum products. The informality extends to a large share of Niger’s imports officially categorized as ‘other,’ as well as to extensive under- and over-invoicing. And finally, it affects data on customs processing and trade logistics. Trade flows which are not recorded, also including those which have been discouraged by lengthy formal procedures, distort the actual picture of border transactions. 2.1.1 Trade Openness and Trends 45. Openness (trade to GDP ratio) gives an indication of the degree to which domestic producers rely on international markets to import goods and services and to which exporters seek foreign markets in turn. No country successfully exports without access to efficient imports, and consumers also look for varieties and qualities that are not supplied by domestic producers. This mutual interdependence is bedrock of international. Figure 2.1 shows the trade�to�GDP ratios (using official statistics), against the log of GDP per capita. It shows Niger’s (NER) openness, like other landlocked countries, is low, like countries featuring also low income per-capita, and featuring marginal change in almost two decades. And even if Niger’s informal trade could put it above the (average) trendline (with no change in per-capita incomes), without putting 13 Unless explained otherwise, this Chapter is based on Benjamin and Pitigala (2017) background paper for this study. 16 other characteristics in context, it is difficult to ascertain if Niger’s trade -to-GDP ratio could raise income levels beyond than what it does. Evidence elsewhere shows that inter-country differences among landlocked countries to a certain extent can be explained by good governance and openness to foreign trade (e.g., Paudel, 2014) 46. As countries become relatively richer over time, they trade more, as shown by peer trends during the 2001 to 2014 period (Figure 2.1). Panel A plots the share of merchandise exports and imports in GDP trendline for Niger and a set of competitors and lower-middle income peers. The corresponding share of goods traded for Niger shows a growing trend in early 2000, reaching the levels of its peer countries in 2010, but ebbing below following the commodity (oil) price slump.14 With growing trade, (both goods and services), Niger’s trade deficit has widened overtime and is perhaps further exaggerated by informal imports exceeding exports (Figure 2.1, Panel B). Figure 2.1. Trends in Niger’s trade (2002-2015) Panel A: Merchandise Trade to GDP (2002-2015) Panel B: Imports and Exports of Goods and Service of Niger 90 (2002-2016) 3500 80 70 3000 60 2500 US$ Million % of GDP 50 2000 40 1500 30 1000 20 10 500 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Burkina Faso Central African Republic Mali Peers Niger Imports Exports Source: Benjamin and Pitigala (2017)’s estimates using WITS. 2.1.2 The Structure of Trade 47. It is useful to compare the changing shares of export by industries and sectors over time to assess how a country’s exports are performing (Figure 2.2). Niger’s officially recorded exports are heavily dominated by chemicals (principally uranium) and petroleum (albeit the latest at a decreasing pace). Since 2009, uranium occupies an overwhelming share in Niger’s export basket; accompanied by the emergence of stone and glass and vegetable products hinting at some degree of diversification within a highly-skewed export portfolio. The appearance of vegetable exports in 2015 may be in part the formalization of heavy informal exports to neighboring countries. Incorporating informal trade and especially livestock exports, where Niger is said to be the biggest exporter to neighboring Economic Community of West African States (ECOWAS) countries (Torres and Seters (2016), and to a lesser extent sorghum, millet and onions, would imply a more diversified portfolio than suggested by formal trade. 14Educated guess estimates of informal trade suggest Niger might have traded at a higher level, closer to its peers (Torres and Seters, 2016, and Raballand, 2017b) 17 Figure 2.2. Composition of exports 2009 and 2015 Miscellaneous Vegetable Animal 3% 2009 1% 2015 0% Food Products Vegetable 0% Mach and Elec Food Products 13% 4% 1% Stone And Glass Fuels 21% 19% Chemicals 60% Chemicals 70% Fuels 4% Source: Benjamin and Pitigala (2017)’s estimates using WITS. 48. A more detailed view using HS 4-digit level exports by sector (in nominal terms) confirms the sheer ascendance of uranium exports over a relatively brief period 2009-15 (see also Table A2.1 in Annex of Chapter II). The top four products (uranium, oil seeds and gold and petroleum) account for 95 percent of its export profile. Compounded growth rates indicate the growth in the share of those export products in the 2009 and 2015 periods that, when divided by the world share of those sectors in total world exports, gives the Revealed Comparative Advantage (RCA) (a static depiction of comparative advantage).15 Given the relatively high share of these top products of in Niger’s export portfolio, it is not surprising they are globally competitive (RCA>1). Sustainability of globally competitive exports is important for low income countries, as Niger’s top commodity/energy exports have experienced erratic swings from year-to-year because of both--international and domestic--supply conditions. It also bodes well that vegetable exports and informal livestock exports (where RCA index is likely to exceed 1) are experiencing steady growth as they tend to have a larger impact on rural incomes and poverty, and most Niger’s population is engaged in agriculture. Table 2.1. Niger’s composition of exports at HS 2-digit level MIC Category 2008 2015 (2015) Raw materials 157.2 (14%) 35.0 (3%) (12%) Intermediate 185.3 (17%) 281.7 (25%) (27%) goods Consumer goods 467.8 (42%) 562.1 (51%) (28%) Capital goods 296.7 (27%) 287.7 (21%) (33%) Source: Benjamin and Pitigala (2017)’s estimates using WITS; Notes: Shares in parenthesis 49. For its part, Niger’s import portfolio is dispersed across a multiplicity of product categories as can be expected from an undiversified small economy. Consumer goods including food, medicine, etc. occupy the largest share (51 percent) of the import portfolio and their share has increased since 2008. A similar share in middle income (MIC) countries would account for an average of 27 percent (Table 2.1). However, 15The RCA index of country I for product j is often measured by the product’s share in the country’s exports in relation to its share in world trade: RCAij = (xij/Xit) / (xwj/Xwt) where xij and xwj are the values of country i’s exports of product j and world exports of product j and where Xit and Xwt refer to the country’s total exports and world total exports. A value of less than unity implies that the country has a revealed comparative disadvantage in the product. Similarly, if the index exceeds unity, the country is said to have a revealed comparative advantage in the product. 18 the rising import share in intermediate goods and capital goods bodes well for Niger’s manufacturing, and is close to peers in recent years. As Niger aspires to transit towards a more diversified economy, facilitating some degree of efficient import substitution will become necessary, which implies an assessment of the current Common External Tariff (see below) and its efficacy as a conducive incentive structure (DTIS, 2015). Table 2.2. Niger’s export destinations in million US$ (2000,2007 and 2015) Major Regions and Partners 2000 2007 2015 European Union (EU) 87.46693 (23.6%) 245.8192 (82.5%) 551.2742 (54.4%) Middle East and North Africa 3.569752 (1.0%) 80.68 (.7%) 199.2701 (19.7%) East Asia 1.659421 (0.4%) 9.685515 (3.3%) 141.3255 (14.0%) Sub-Saharan Africa 2.50079 (0.7%) 7.171361 (2.4%) 28.30907 (2.8%) ECOWAS 0.971974 (0.3%) 6.732782 (2.3%) 27.57135 (2.7%) South Asia 0.15593 (0.0%) 5.0489 (1.7%) 9.086083 (0.9%) France 82.93283 (22.4%) 3.811173 (1.3%) 548.7877 (54.2%) United Arab Emirates (UAE) 0.319275 (0.1%) 2.212867 (0.7%) 178.861 (17.7%) China 0 (0.0%) 2.160081 (0.7%) 141.0371 (13.9%) Russian Federation 0.000507 (0.0%) 1.060844 (0.4%)) 38.75487 (3.8%) Switzerland 0.174929 (0.0%) 0.944 (0.3%) 28.98227 (2.9%) Burkina Faso 0 (0.0%) 0.928114 (0.3%) 20.71621 (2.0%) Algeria 0.816188 (0.2%) 0.81112 (0.3%) 20.04306 (2.0%) Pakistan 0 (0.0%) 0.667979 (0.2%) 8.649431 (0.9%) Cote d'Ivoire 0 (0.0%) 0.591086 (0.2%) 5.582026 (0.6%) United States 7.149605 (1.9%) 0.478 (0.2%) 4.243633 (0.4%) Spain 1.446447 (0.4%) 0.433136 (0.1%) 3.238219 (0.3%) Slovak Republic 0.000102 (0.0%) 0.430452 (0.1%) 2.80076 (0.3%) Canada 1.353383 (0.4%) 0.406916 (0.1%) 1.465883 (0.1%) Australia 0.075142 (0.0%) 0.406647 (0.1%) 1.248602 (0.1%) Benin 0.046073 (0.0%) 0.394772 (0.1%) 1.093821 (0.1%) Source: Benjamin and Pitigala (2017)’s estimates using WITS data. Note: Share of total in parenthesis. 2.1.3 Niger’s Evolving Export Destinations 50. Exports’ product diversification should preferably be accompanied with exports’ market diversification to mitigate risks against demand shocks. A diversification of exports towards the new emerging countries of Asia and Latin America is attractive as their demand for energy products will continue to grow over the next decade or so. In this regard, the EU dominates Niger’s exports with 54 percent share in 2015, absorbed almost entirely by France. The Middle East follows the EU, accounting for 17 percent of exports, mainly by the UAE. Noteworthy is the relative importance of East Asia ascendance from less than 1 percent in 2000 to 14 percent of Niger’s exports in 2015. Another significant importer is China with nearly 14 percent, in contrast to the ECOWAS region that recorded only 7 percent of Niger’s exports, with Burkina Faso among the major importers at a 2 percent share of total exports (Table 2.2). While mining products and hydrocarbons dominate exports to France and East Asia, agricultural products are main exports to ECOWAS. 51. A more diversified economic structure reduces risks associated with volatility and shocks in the international market. The evidence indicates that it is not natural resource dependence per se that 19 increases risk, but rather the concentration of exports (Lederman and Maloney, 2007); and Niger’s export basket is heavily skewed towards a handful of sectors. More formally, the Hirschman-Herfindahl Index (HHI)16 indicates that export concentration has significantly increased for Niger as it has for its neighbors in recent years (Figure 2.3). This is contrary to what Imbs and Wacziarg’s (2003) findings suggest: i.e. that economies tend to rather diversify over most of their development path until reaching a relatively high threshold of income growth associated with specialization. Klinger and Lederman (2006) find a similar inverted U relationship between income and export activity. Figure 2.3. Hirschman-Herfindahl Product Concentration Index (2011/2015) Source: Benjamin and Pitigala (2017)’s estimates using WITS. A larger index reflects a higher concentration. Figure 2.4. Niger’s trading partners: predicted vs. actual exports Source: Benjamin and Pitigala (2017)’s estimates using WITS 52. A gravity model allows to detect Niger’s under- and over-exporting market destination trends.17 The country is under-exporting with ECOWAS members like Benin, Burkina Faso and Nigeria, as well as with 16 HH Index is defined as: where S is the share of export j in the total exports of country i. A country with a perfectly diversified export portfolio will have an index close to zero, whereas a country which exports only one export will have a value of one (least diversified) 17 The model uses mirrored bilateral exports (2013-2015) on the following bilateral characteristics with trading partners: remoteness, contiguity, log of GDP, log of GDP per capita, etc. We also incorporated a ECOWAS dummy. The remoteness is 20 larger markets like France and China (Figure 2.4). In contrast, Niger’s exports to Togo, Senegal and Belgium, for example, are above what is expected from geographical and other factors, probably explained by proximity and trade complementarities as well as by its role as re-export base for third countries. 53. Are Niger’s export products growing in demand in the world? Figure 2.5 shows how Niger’s exports are performing through its export shares in strategic markets and their corresponding import growth levels. The graph on the left panel shows world import growth (on the y-axis) and the importance of such high- growing products in Niger’s export portfolio (x-axis). There appears to be no correlation between Niger’s exports and their growth in the world market depicted by a flat trend. The top exports of Niger—Chemical, Uranium are not growing as rapidly as other products like precious stones, gold, cashew, oil seeds, etc. Similarly, Niger’s top export partners are not among the top world’s importers between 2013 -2015 except for Botswana, Togo, and to some extent France. A concerted effort is needed to build relationships with fast-growing import markets in both Africa and Asia for products which Niger exports. In fact, the data show nascent signs of breaking into non-traditional markets in Asia such as Vietnam and Gulf Cooperation Countries (GCC). Overall, Niger has expanded the number of export markets from less than 80 to 110 in at least one of its export products. 54. Hence, Niger should redirect its major exporting trends. A complementary analysis, following Hummels and Klenow (2005), applies the IM and EM. Each are measured in terms of products and markets. In Figure 2.5, left panel, the y-axis measures the IM, the relative importance of Niger’s export basket compared to world exports of these products. The x-axis, measures the EM, the global importance of Niger’s export basket relative to the world’s total exports. This reveals that Niger’s share of exports in products that the rest of the world (ROW) also exports (IM) has declined over the last 8 years. Uganda, a benchmark African exporting country, has rather shown an increase in its share of export in goods which the ROW also produces (IM) as well as the breadth of their export portfolio relative to all exportable products (EM). Extending the analysis to incorporate destinations, Figure 2.6 right panel shows that Niger’s IM, its export share in countries to which it currently export has also diminished. However, the country has tremendously increased its foothold in markets that cumulatively are larger relative to the world in 2015 than in 2009 (EM). Uganda, once again, has shown positive movement in both its share where it currently exports and added top markets into its export profile. Figure 2.5. Niger’s orientation of exports products and destinations Precious stones Products Destinations 35 (excl. diamonds, rough) Gold (incl. gold 0.35 Botswana World Growth of products (log) 30 plated with 0.3 Import Growth in Partner (log) 25 ​ ​ platinum) Togo 0.25 Occ.Pal.Terr​ Vietnam ​ 20 ​ ​ Precious stones 0.2 ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ (excl. diamonds) ​ ​ ​ ​ 0.15 ​ ​ ​ ​​ 15 ​ ​ ​ ​​​​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ ​ ​​ ​ ​​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​​ ​ ​ Uranium ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ 10 ​ ​​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 0.05 ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​​​ ​ ​ ​ Sudan ​ ​ ​ ​​ 5 ​ ​ ​​ ​ ​ ​ ​ ​​ ​ ​ 0 ​ ​ ​ ​ ​ ​ ​ -0.05 ​ ​ 0 ​ ​ ​ ​ France ​ -5 -4 -3 -2 -1 -0.1 -5 ​ Petroleum oils & 0 -0.15 oils obt. from bit -10 -10 -8 -6 -4 -2 0 -15 Share of Exports by Destination (log) Product Share in Niger's Exports (log) Source: Benjamin and Pitigala (2017)’s estimates using WITS computed by summing distances weighted by the share of GDP of the destination in world GDP. This is to take note of the fact that relative distances matter greatly, alongside absolute distances. 21 Figure 2.6. Niger’s intensive and EM Intensive and Extensive Margin in Products .018 UGA UGA .016 Intensive Margin NER .014 .012 NER .01 75 80 85 90 95 Extensive Margin 2007 2015 Source: Benjamin and Pitigala (2017)’s estimates using WITS 2.2 Niger’s Trade Policy 55. Niger has little independent control over the exchange rate and Customs tariffs, the traditional instruments of trade policy (Box 2.2). As part of WAEMU, the eight member countries have had a common currency, the CFA franc, since the 1960s. The nominal exchange rate was pegged to the French franc until 2000, when that parity was converted into a fixed rate with the euro. Under a fixed nominal exchange rate regime, the real effective exchange rate (REER) can only be affected by expansionary monetary or fiscal policies that inflate domestic prices vis à vis international prices. Therefore, its quest for trade diversification is mainly focused on trade facilitation, reducing border costs and transport costs, reducing non-tariff barriers, and improving the business climate in ways that will expand opportunities for regional exports. Box 2.2. Niger Government trade policy In 2014, Niger published its trade policy document to support the agenda of the Government, “Elaboration de la Politique Commerciale du Niger.� Such national policy was based on the principle of subsidiarity to regional commitments, including UEMOA and ECOWAS; and therefore, it did not include any measure involving tariff rates or the exchange rate. Its overall objective is to improve competitiveness conditions to expand economic diversification, both through strengthening existing commercial activity and through diversifying export products and markets. Its specific objectives aim to : • Strengthen the institutional capacity for managing trade policy • Improve the business climate through legal and regulatory reforms, and facilitate trade by modernizing procedures and reducing trade costs • Identify and support the development of new products through technical assistance, finance, and cultivation of new markets • Reinforce supply and distribution channels to reduce trade costs • Strengthen links with global value chains, with improvements in all the dimensions listed above. The policy includes a matrix of actions and a reporting mechanisms. Monitoring has been partly implemented. 56. Niger’s competitiveness has improved with the euro (and Niger’s CFA REER) mild depreciation in recent years. Since 2001, CFA short episodes appreciating in real terms because of the strong euro, have only played a minor role in affecting Niger’s exports competitiveness. Niger’s REER has been largely following the movement of the WAEMU REER, which is also pegged to the euro, and therefore echoing the fluctuations in Euro against US$ (Figure 2.7 left). Between 2011 and 2014, a strong euro accompanied by low inflation on average in Niger relative to WAEMU and Nigeria—main trade partner with larger inflation and relatively stable naira--resulted in a more appreciated REER in Niger. However, the subsequent 22 depreciation of the euro against the USD since 2014 has been the source of the most recent depreciation of the Niger REER and a regain of its export competitiveness. In this regard, an exceptional case has been how changes in Niger’s CFA currency parity vis-a-vis Nigeria’s naira have impacted on their bilateral trade patterns. Given the overwhelming share of petroleum in Nigeria’s total exports, the value of the naira basically follows the international price of oil. Hence, the 50 percent drop in world oil prices from their peak in 2014 has generated a substantial depreciation of the naira in real terms (Figure 2.7 right), thus significantly modifying its bilateral flows with Niger: The ensuing real appreciation of the CFA franc vis a vis the naira has reduced Niger’s exports and re-exports to Nigeria, with losses in Customs revenue equivalent to about 1 percent of GDP, and increased Nigeria’s imports possibly generating a bilateral trade deficit, (Lopez-Calix et al. 2016). Figure 2.7. Nominal and REER Nigeria, REER 140 130 120 110 100 90 80 70 60 2006M01 2006M08 2007M03 2007M10 2008M05 2008M12 2009M07 2010M02 2010M09 2011M04 2011M11 2012M06 2013M01 2013M08 2014M03 2014M10 2015M05 2015M12 2016M07 2017M02 Source: IMF (2017), and WDI. Note: A decrease means real depreciation. REER estimates are based on Touqeer (2017). 2.2.1 WAEMU/ECOWAS: The Role of the Common External Tariff 57. In addition to the common currency, WAEMU member states have also adopted a Common External Tariff external common tariff (CET, or TEC in French) which went into effect at the end of the 1990s, but its application is subject to major distortions, does not favor export diversification and rather foster informal unrecorded trade. The CET had three positive nominal rates (5, 10 and 20), and formal procedures for requesting exceptions, though these are sufficiently complicated that they have been seldom used by Niger. In 2015, in the interest of facilitating trade among neighboring countries, the 15 members of ECOWAS adopted the WAEMU CET, with an additional 35 percent tariff rate to be applied to a small number of goods: a total of 288 tariff lines (raising 225 and lowering 63). The trade-weighted ECOWAS CET raises tariffs by about 0.7% compared to the original CET. (See Annex II.A) In theory, (i) goods produced within the ECOWAS customs union (meeting ECOWAS or WAEMU rules of origin) can be exported free of tariffs to other member-countries, for instance agricultural products; (ii) goods arriving from outside the tariff zone would have the CET applied to them, and; (iii) for imports marked as transit goods destined for another member country, the tariffs would be remitted in the destination country. In practice, however, transit goods can be mislabeled (e.g. used cars in Benin), or have the country of first entry applying import tariffs and then smuggling goods to destination countries, or import taxes be charged at more than one border. Other anomalies multiply. For instance, the transit path for goods offloaded at the port in Cotonou and trucked north may operate as intended as far as the Benin/Niger border. However, once arrived in Niger, most consumer imports are transacted in informal markets. Another example is the treatment of re- exports to Nigeria, which typically involves Niger taking a small tax at entry into Niger (5-10 percent) before their transit to Nigeria. Miss-recording is also generalized: Customs data from the Benin/Niger border are not always helpful in discerning imports for Niger from imports intended for re-export. The data show an 23 inexplicably large share of imports in the HS 99999 or ‘other’ category. This obscures not only the products being traded but also the likely destination. 58. The UEMOA CET is composed of four tariff bands (customs duties) (Table 2.3). Adoption by the Heads of State Summit of a Supplementary Act created a fifth band of the ECOWAS CET at 35% for “Specific goods for economic development� and adopted common eligibility criteria among all the ECOWAS Member States for the submission of products to this fifth band. Looking in more detail at the MFN rates —set and effectively applied—as well as ECOWAS rates applied for specific products in Niger (Annex II.A), four findings are apparent: Table 2.3. Niger’s CET, MFN and ECOWAS tariff rates Applied Applied Agreed ECOWAS Applied Goods Description Tariffs EAC ECOWAS CET MFN SADC ECOWAS CET Essential social goods. 0.0% NA NA NA NA Goods of primary necessity, raw materials and 5.0% 20.7% 6.0% 9.64% 4.37 specific inputs. Intermediate goods. 10.0% 10.9% 10.0% 8.75% 4.49 Final consumption goods 20.0% 17.0% 13.5% 17.07% 11.96 Capital goods 8.1% 7.6% 4.97% 2.82 • Applied tariff rates to the ROW are higher than those of most other countries, with many rates close to the ceiling 20 or even 35 percent (see Annex II.A).18 • With many high rates and a large dispersion between intermediate and final goods, the nominal tariff schedule becomes highly distortionary. However, such schedule with multiple rates alone promotes informal trade and their required verification of products stimulates corruption, which adds up to already difficult border procedures (see below). • The differences between MFN nominal and ROW effective Custom rates points to the fact that nominal rates might be applied in a rather ad hoc manner. Their ad hoc application and the attendant’s uncertainty further encourages informal trade. • Niger’s ECOWAS vs. MFN rates on goods of primary necessity are significantly misaligned, i.e. meat and fish. 59. Putting in place a common tariff liberalization policy is complicated by the fact that despite nominal tariff reductions under its regional agreements, WAEMU economies continue to be highly protected. Niger belong to ECOWAS. The new ECOWAS CET, agreed in 201519 introduced a new 5th tariff band of 35%. Therefore, the average ECOWAS tariff rate (calculated as a simple average) increased from 11.9 percent to 12.2 percent, and from 10.6 to 11.3 percent when import-weighted. Two more facts are worth noting: agricultural goods are the most highly protected and the incidence of increased protection under the new CET differs among ECOWAS Members. But this is not all, to make matters worse for Niger, tariff duties are far from being the only tax applied at the border. Niger’s list of various border taxes is extensive and 18Niger’s tariff revenues, at around 3 percent of GDP and 20 percent of fiscal revenues, are typical of low income countries. 19The CET is defined at the HS 10-digit level. However, trade data is only available at the slightly lower (5,055 products instead of 5,899) HS 6-digit level of disaggregation. Therefore, analysis can only be realized, at the 6-digit level. 24 corruption-prone,20 while in theory other ECOWAS members are exempt of duties and taxes within the region. 2.2.2 NTBs 60. Niger also features significant Non-Tariffs Barriers. First the application of rules of origins, which would allow for free trade among ECOWAS members is highly defective. The ECOWAS Trade Liberalization Scheme is the current program designed for this purpose but Niger has extremely limited participation, as only four companies are registered in Niger. 61. Official import restrictions through bans or quotas are also occasionally applied, mostly in sectors with domestic competing products. These largely apply to food products and can be imposed seasonally to protect local producers and industries. Some ECOWAS members have on occasion imposed export restrictions, usually on grains, and largely short term to help cope with temporary food security problems. Niger bans exports of seed cotton. [Torres and Seters (2016)]. 62. But perhaps the most significant non-tariff barrier is the complexity of customs procedures (Box 2.3). Procedures are not only complex but duplicative, often unnecessary and based on outdated manual systems. This complexity provokes and facilitates collusion and corruption among traders, officials, and intermediaries. It also provides incentives for extensive smuggling and informal trade. Customs officials also extract payments for goods in transit, as well as force lengthy procedures for clearance at border crossings, holding up shipments for days or even weeks. Even though ECOWAS made regional commitments to eliminate the need for certificates of origin for food products, some members continue to require them. And despite ECOWAS countries signed technical agreements for mutual recognition of sanitary and phytosanitary certificates, border officials still require traders to obtain duplicate certificates. This may in part be due to lack of information, but may also be in the interest of creating an opportunity to collect fees or bribes. 63. Smuggling is also a major issue. For Niger, the most commonly smuggled commodity is petroleum products from Nigeria. Nigeria exports crude petroleum and mostly imports refined products which it continues to subsidize, though these subsidies have been reduced over time. The combination of the remaining subsidies and the depreciated naira finds traders with major returns from buying refined petroleum products in Nigeria and smuggling them into Niger and neighboring countries. Similarly, the ban in Nigeria on imports of used cars provides incentive for large numbers of used cars to be re-exported to Nigeria through Benin and Niger. However, despite the recording of these as transit goods in Niger, the resulting sales from smuggling into Nigeria do not appear on the record. Smuggling and informal trade often relies on collusion between informal traders and local bureaucrats or politicians. Walther (2009) reports that in Niger, local political elites are disproportionately engaged in informal cross-border trade. Bako Arifari (2006) confirms the possible collusion between some customs officers and traders in Niger. 20In Niger, various border taxes apply: (i) a statistical import charge (RSI): 1 percent; (ii) a value-added tax set at 19 percent in WAEMU directives; (iii) a WAEMU community solidarity levy (PCS): 1 percent; (iv) an ECOWAS community solidarity levy (PC): 1 percent; (v) a special import tax (TCI) on some agricultural products: 10 percent of floor price; (vi) an excise tax: between 15 and 45 percent depending on the product (for example, cigarettes and alcoholic drinks); (vii) an import verification tax (TVI): 1 percent of the value of the goods, to finance fees paid to COTECNA; (viii) a pre-shipment inspection service; (ix) an advance on the tax on industrial and commercial profits (BIC): 5 percent of the value of the goods for operators who have no tax identification number (N.I. F.); and (x) a 3 percent tax for operators with a N.I.F. (DTIS, 2015). 25 Box 2.3. Customs collects one third of what it should do due to tax exonerations and smuggling When compared to other countries in Sub-Saharan Africa with equivalent weak governance, Niger’s performance in customs revenue collection is quite poor. Niger collects just one-third of potential customs revenues (Figure below). Exemptions and losses from fraud and smuggling almost equal revenues collected. Distribution of revenues collected by customs, losses, and exemptions, (2015) Revenues Exemptions collected 36% 36% Estimated revenue losses 28% Source: Authors’ calculations and representation. Smuggling of hydrocarbons and revenue losses due to domestic sales intended for export are the main sources of revenue losses (Table 1). At the same time, smuggling and undervaluation of goods from Nigeria represent more than one-quarter of losses in this area, or more than US$25 million, and undervaluation of goods from other border countries also represents close to US$25 million annually. Estimates of hydrocarbons smuggling are based on interviews rather than customs statistics and should be treated with caution. Smuggling data are also more difficult to estimate, but based on comparative countries, consumption (coming from informal trade) of approximately US$4 per person per year is minimal (as compared to US$250 in South Nigeria, US100 in Tunisia, and US$75 in North Mali before the official closure of the border). In Niger, total estimates of smuggling of goods and hydrocarbons are less than US$40 per person per year, much lower than North Mali. These estimates are therefore likely to be conservative. Summary of Customs revenue losses (CFAF, billion) Amount Hydrocarbons smuggling 48,703 Losses due to domestic sales of hydrocarbons intended for export 13,281 Goods smuggling 17,049 Undervaluation of products from Nigeria 13,275 Undervaluation of products from other countries 25,673 Total 117,981 Source: Raballand (2017). Although there are clearly exogenous constraints affecting customs, such as the length of the borders and the lack of resources, many problems lie with the customs department itself. Examples include outdated procedures and lack of integrity of some officers; and far too complex procedures, promoting collusion between customs officials and intermediaries or importers. Most practices are based on outdated and cumbersome manual procedures, compounded by insufficient human resources management. There is strong emphasis on front-line controls, with almost no ex-post controls by the regional directorates or the National Surveillance Directorate. There is no internal control in the customs units, allowing a “culture of impunity� to reign. The operation of the ASYCUDA World system is suboptimal in the bureaus where migration to this system has taken place. Note: This box is based on Raballand (2017a). 64. Formal exports are charged a statistical export charge (RSE) amounting to 3 per cent ad valorem which applies to all products except mineral substances, along with a special re-export tax (TSR) (WTO, 2016). Niger derives significant revenues from taxes collected on re-exports to Nigeria. The IMF estimates them at approximately 25% of customs revenues (or 1% of GDP). Niger offers no export subsidies. And in the case of live animals, the export tax is levied based on minimum values. However, much livestock exports are conducted informally. Border communities and towns such as Maradi/Zinder/Diffa/Birnin Konni/Tahoua depend significantly on revenues coming from informal trading as a key economic activity, even the most important revenue source for some border towns. 26 2.3 Simulating the Implication of Regional Trade Agreements on Niger21 65. This section examines the impact over imports and fiscal revenue of regional trade agreements over Niger. The country has committed to apply the CET of ECOWAS, as well as to apply the Economic Partnership Agreement (EPA) signed on February 2014 with the EU.22 The simulations will allow to show the limited impact of trade preferential agreements, constrained by the country’s extensive use of tax exonerations and the small share of imports originating from ECOWAS and European countries. Regarding the former, per Customs data, in 2015 only 40 percent of imports entered Niger with the statutory MFN tariff rate; while 59 percent benefitted from partial exonerations (uranium only had 14 percent) and 1 percent are totally exempted. The latter is used by only four ECOWAS countries (out of 14 ECOWAS countries exporting to Guinea in 2013). Regarding the latter, in the same year, imports from ECOWAS and European countries represented 23 percent and 15 percent of total imports, respectively, both small ratios when compared to similar shares in neighboring countries. Preferential access was used by 11 out of 14 ECOWAS countries (Nigeria being the most important with a share of 6 percent of total imports). 66. There is a wide diversity of tariff regimes and taxes that should be simplified. A myriad of taxes are levied on imports in addition to tariffs: Custom tariffs (5 slabs at 0, 5, 10, 20 and 35 percent), two ECOWAS “prelevements communautaires� (single tax at 1 percent each), statistical “redevance� (single tax at 1 percent), excise taxes (alcohol: 45-50 percent, tobacco and cigars: 45 percent, other products: slabs at 8, 10 and 15 percent), imports verification tax (single tax at 1 percent), and VAT (3 slabs at 0, 5 and 19 percent).23 As a result, in 2015, total tax revenue from Customs was dominated by the VAT (49 percent), tariffs (30 percent), excise taxes (10 percent) and the other taxes (11 percent). The mean duty on imports in Niger is 35.3 percent, while tariff alone has an import-weighted mean of 15.4 percent (and a simple mean at 12 percent). The multiplicity of such taxes should also be considered when simulating the elimination of tax exonerations. 67. The EPA with the EU targets a market access offer of 75 per cent liberalization over a 20-year transition period accompanied by an EPA development program of 6.5 bn. euros for the 2015-2019 period (lower than the 15 billion euros initially requested by the West African countries). ECOWAS countries have also agreed to grant the EU any new favorable tariff treatment provided to another trade partner in the future, provided the latter has a share of international trade higher than 1.5 percent and with a sufficient degree of industrialization (above 10 percent in the year prior to the agreement’s entry into force). These criteria would exempt any tariff preference granted to another African or ACP countries, while it would include any preference that would be granted for instance, to China, India or Brazil.24 68. The World Bank’s Tariff Reform Impact Simulation Tool (TRIST) was used to simulate the impact of removal of tax exonerations, and implementation of the new CET and the EPA on Niger’s import and fiscal revenue (Annex II.B). The following simulations were performed. Series 1 presents the baseline. Serie 2 eliminates just all Customs tariff exemptions. Serie 3 eliminates all tax exemptions (extreme case). Serie 4 applies the CET just to Niger and generalizes all existing exemptions to ECOWAS countries. Serie 5 applies the CET but by all ECOWAS countries under a free liberalized trade zone. Serie 6 applies the initial tariff 21 This section is based on Jammes (2017) background paper for this study. 22 79 African, Caribbean and Pacific (ACP) countries that were part of the Cotonou agreement (2000) took part in the negotiation of the EPA with the EU. The agreement had long stalled, as developing countries were afraid of the reciprocity clause of the EPA, which granted preferential access to EU products; whereas the EU saw it as a development tool, linked with aid for trade, technical assistance and political dialogue. 23 The domestic tax on petroleum taxes is not included in this list. 24 And on the divisive issue of agricultural subsidies, the EU will stop export subsidies on farm goods sent to the West African region. The non-execution clause, which allows parties to suspend their commitments in cases of human rights or democracy violation would have been dropped and EU allows for some asymmetry in rules of origin of West African countries due to their level of development. 27 reductions of the EPA. Serie 7 simulates the impact of full application of the EPA by 2035. Serie 8 applies the initial tariff reductions combined with partial trade liberalization among ECOWAS countries. And Serie 9 combines the CET, with the initial tariff reductions combined with partial trade liberalization among ECOWAS countries.25 69. Figure 2.8 shows all results from TRIST simulations compared to the baseline (2015). Not surprisingly fiscal revenue increases significantly when eliminating all tax exemptions, either just on Customs tariffs (7.3 percent growth rate) or on all taxes (20.4 percent growth rate), respectively raising from CFAF153 bn. to CFAF164 bn. or CFAF184 bn. The downside of this from the anti-export bias is that in the former case, the average level of tariff protection increases from 6.1 percent to 11.5 percent with the application of the MFN statutory tariff rates; which also reduces total imports by about 12.3 percent. 70. The application of the CET seems at first sight almost irrelevant from the perspective of the level of external protection, and is only slightly positive from the perspective of raising additional imports from ECOWAS countries. Under the CET, the average level of tariff protection for Niger barely increases from 6.1 percent to 6.3 percent, and the impact either on imports growth rate (-0.5 percent increase) and fiscal revenue growth rate (+2.2 percent) is marginal. The overall small effects are a consequence of the small number of products targeted. However, these products have been selected based on their strategic value to ECOWAS members. The high tariffs target consumer goods that are proportionally more consumed by the poorest segments of the population, thus potentially creating a non-trivial impact on the most fragile segments of the population (Gourdon and Maur, 2014). 71. Compared to the CET reform, as the EPA phases in, the impact will progressively be larger, again, not on imports but on foregone tariff revenue. The initial application of the tariff reductions has marginal impact on Niger’s average level of protection, imports and fiscal revenue. Ditto when adding it up the application of the CET. And surprisingly, even when applying the end-tariffs of 2035, their impact is quite limited. These results point to a very gradual transition, not representing a major shock for the local industries, even in the medium term. Such smooth transition is explained by both the low share of total imports originating from the EU (15 percent) and the significant number of EU imports already benefitting from tariff exemptions (40 percent). Finally, only the simultaneous application of the TEC and EPA with end- tariffs 2035 has a more significant, albeit small, impact on the average level of protection (falls to 5.6 percent). imports growth rate (0.3 percent) and fiscal revenue growth rate (-2.1 percent). EPA, CET and free trade reforms will however slightly benefit imports from the EU and ECOWAS countries, which combined will increase by 3.6 percent and 0.5 percent; whereas imports from the ROW will remain stable. Overall, CET’s and EPA’s impact on tariff level and revenue appear mitigated by the actual Customs regimes already granted to EU products; and the onerous and cumbersome tax exemptions regimes. 25 Full detail on the simulations is found in Jammes (2017) and is available upon request. 28 Figure 2.8. TRIST simulations 1.900 Variations with respect to baseline (serie 1) of 8 1.800 1.700 1.600 1.500 1.400 1.300 1.200 1.100 1.000 0.900 0.800 Importations Recettes Tarifaires Recettes Fiscales Tarif Moyen Series1 Series2 Series3 Series4 Series5 0.700 Series6 Series7 Series8 Series9 1 Baseline (base 1) 6 Table 14 - APE application (initial transition) 2 Table 10 – Eliminating all tariff exonerations (XOF) 7 Table 15 - APE application (CEDEAO 2035) Table 16 – TEC CEDEAO application, and APE (initial tariffs) and partial free trade with 3 Table 11 – Eliminating all tax exonerations (XOF). 8 CEDEAO Table 17 – TEC CEDEAO application, and APE Table 12a - Applying TEC CEDEAO and generalizing existing (end-tariffs of transition) and partial free with 4 tax exonerations at CEDEAO 9 CEDEAO 5 Table 12b - TEC CEDEAO and free trade integral at CEDEAO Source: Jammes (2017). 2.4 Trade Facilitation and Logistics 2.4.1 Logistics Performance 72. Geography adds dramatically to the exports diversification challenges of Niger as the degree to which the trade and transit environment accentuates transaction costs determines the countries’ potential for formal and informal trade. Being landlocked results in high trade transaction costs, with logistics costs accounting for 30 percent of GDP, double that of other emerging economies and three times that of developed countries (World Bank 2014). Niger is completely dependent on their transit neighbors’ infrastructure and administrative procedures to transport its goods to sea-port, the most expedient channel for international commerce. Niger primarily relies on Cotonou port in Benin, and via dry ports in Burkina Faso that would link by rail to the seaports of Tema and Takoradi in Ghana. Niger also utilizes existing trade corridors linking the six major port cities: Lagos, Nigeria (with two ports, Apapa and Tin Can Island); Cotonou, Benin; Lomé, Togo; Tema, Ghana; Abidjan, Cote d’Ivoire; and Dakar, Senegal, including the West - East Trans- Sahelian Highway between Dakar and Ndjamena and the Trans-Coastal highway between Dakar and Lagos, and the interconnecting North – South roads. Efficient functioning of these 29 corridors is essential for Niger in terms of both formal international and ECOWAS regional trade. Moreover, empirical evidence shows that most traders that are illiterate, and small and medium enterprises (SMEs), in general, are more susceptible to the formal administrative procedures that act as a deterrence to engage in trade or opt for informal trade. Niger’s connectivity to markets therefore needs to be understood from a broader perspective that goes beyond its borders regionally and internationally. Solving some of the shortcomings of its trade logistics are within its own domestic sphere, while others, such as the development of efficient transit corridors, requires engagement in bilateral, regional and multilateral institutions. 73. Niger shows a mixed performance in terms of border procedures. The World Bank’s Trading Across Borders index measures the time and cost for importing and exporting, covering documentary compliance, border compliance, and domestic transport at country level. Niger performs remarkably well (the lowest) in time for border compliance time and cost of documentary compliance for export, as well as the time to comply with border procedures for imports. However, Niger performs less well in terms of export border compliance costs and other time and costs associated with imports (Table 2.3). In terms of accessing coastal ports, Benin offers a better proposition than Nigeria. However, the transactions environment associated with Burkina Faso, a landlocked transit country, attenuates the costs of accessing coastal routes to western ports, and appears less desirable, while Nigeria’s Lagos port is no more feasible in terms of both import and exports costs and documentary compliance. 74. Niger performs well among regional transit partners in international shipments, track and trace and time lines, but still performs below many of its African peers (Figure 2.9 And Table 2.4). The quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology) in Niger, a key element of basic connectivity and access to gateways, is relatively weak compared to its neighbors. Although Niger has made considerable progress in some areas of its infrastructure, especially information and communication technology (ICT) sectors by increasing domestic competition, the cost of domestic transportation due to "hard" and "soft infrastructure" results in high transaction costs (DTIS, 2015). Tracking and tracing shipments appear to be weaker in Niger relative to Burkina Faso and Benin. Thus, Niger ranked at 130th place (of 160) in the world in terms of performance in logistics in 2015 and has been deteriorating in recent years. Finally, measures of aggregate trade costs are provided in Annex AII.D. Table 2.4. Niger and peer trading across borders indicators Time to import: Documentary Time to export: Documentary Cost to import: Documentary Cost to export: Documentary Time to import: Border Time to export: Border Cost to import: Border Cost to export: Border compliance (hours) compliance (hours) compliance (hours) compliance (hours) compliance (USD) compliance (USD) compliance (USD) compliance (USD) Country Benin 78 487 48 80 82 599 59 529 Burkina Faso 75 261 84 86 102 265 96 197 Chad 106 319 87 188 242 669 172 500 Malawi 85 243 83 342 64 143 63 162 Niger 48 543 51 39 78 462 156 457 Nigeria 135 786 131 250 284 1077 173 564 Paraguay 120 815 24 120 48 500 36 135 Rwanda 97 183 42 110 86 282 72 121 Peer (Botswana, Kenya, Uganda) 33 249 36 157 113 473 75 159 Source: World Bank’s DB Indicators 30 Figure 2.9. Niger’s comparative LPI score-2014 Source: World Bank’s Logistics Performance Index 75. In sum, Niger’s trade facilitation faces several challenges. These include a) the lack of ‘soft’ and ‘hard’ infrastructure; b) burdensome and costly customs and border control procedures as mentioned above; and c) poor logistics quality and compliance. Given that transit country measures are not favorable and below peers, Niger’s landlockedness amplifies the need for expediency with reforms within its own sphere, while seeking regional and multilateral solutions to facilitate trade along its trading corridors. 2.4.1 Bilateral and Regional Frameworks to Address Niger’s Trade Facilitation Challenges 80. Niger is a member of a number bilateral and regional arrangements that aim to reduce trade costs and enhance direct access to other markets. Niger has concluded a series of bilateral agreements starting from as early as the mid-1960s with several countries to better integrate into regional and global markets, including Burkina Faso (Upper Volta) (1966), Côte d'Ivoire (1975), Benin (1977), and Togo (2007) (DTIS, 2015). However, at the departure of the ports of Côte d'Ivoire, Benin and Togo, Nigerian carriers typically book two-thirds of the tonnage, while carriers of other countries account for the remainder. The distribution of imports arriving through these same ports is closer to 50:50. At the regional level, UEMOA (8 Member States) and ECOWAS (15 Member States) have trade facilitation included in their respective agendas, including the principle of the freedom of movement of goods and persons through various directives or regulations. The activities of the UEMOA in the field of trade facilitation, transit and transportation have focused on the traditional aspects of trade facilitation in procedures for customs clearance, customs valuation, harmonization of VAT rates between Member States, and harmonization of standards and control procedures for vehicle standards and specifications (DTIS, 2015). In March 2010, a roadmap was also signed with Ghana (non-member of the UEMOA, but a member of ECOWAS), under the auspices of the UEMOA, to harmonize the practices and regulations and facilitate the movement of goods by road between the countries of the UEMOA and Ghana. Meanwhile, at the level of ECOWAS, a convention on the regulation of road transport between its Member States and a convention on inter-state road transit traffic have been adopted and implemented. 81. Despite the multiplicity of these agreements, several issues were highlighted in DTIS (2015) summarized below: • Roads Infrastructure is poor. In Niger, the transport infrastructure depends strongly on partly paved roads that suffer from lack of maintenance. The entire network is approximately 19,000 kilometers, of which less than 4,000 are paved and 7,000 kilometers of rural tracks in good condition. The density for 1000 inhabitants is only a third (1.2 kilometer) of what it is on average in sub-Saharan Africa. The Cotonou-Niamey corridor, almost entirely paved, is by far the most utilized, accounting for more than 31 65% of goods traffic. At 1,050 kilometers, the corridor is shorter than Lomé-Niamey, though the latter is also asphalted. • Roads harassment by a multiplicity of control points that collect significant illegal payments is generalized: For example, along the Bouaké-Niamey corridor, for a total distance of 1,371 km, 38 check points have been counted (14 in Côte d'Ivoire, 16 in Burkina Faso and 8 in Niger for only 121 km). On the Parakou – Niamey corridor, for a distance of 605 km, 19 points of control have been identified (9 in Benin and 10 Niger to 282 km). Individual payments at each check point, though small, add up sufficiently to deter traders with small volumes, especially the poor and women traders, which results in many such traders engaged in informal trade. Such traders as well as unorganized transporters often do not have the capacity or means of organizing and demanding the abolition of illegal fees and levies. These fees have therefore become a norm and the social acceptance of such practices and weak enforcement mechanisms have further perpetuated rent-seeking practices along the trade corridors. • Cross-border trade is expensive and inefficient due to the difficulty of obtaining import and export licenses. It takes an inordinate amount of time to file for licenses, and bribes or informal payments may be expected. Only 2,340 companies are registered in customs. • Unorganized and Fragmented Domestic Transportation Market: The transport sector in Niger is characterized by many artisan carriers and a low number of formal enterprises. The codes of conduct and rules of drivers are at a nascent level. This engenders a lack of reliability and predictability that are essential factors in the exports performance of the logistics supply chain. In addition, the carriers do not know well the regulations and have little capacity for negotiation with officials in the absence of sufficient training. The result is a vicious circle of further informality and thus informal trade. 82. The recently ratified WTO TFA provides its members, like Niger and its neighbors a robust, time- sensitive opportunity to address issues on regional and international trade. It does so by expediting the movement, release, and clearance of goods including transit issues across the region. Both UEMOA and ECOWAS have been actively involved, as trading blocs, in the TFA. The two institutions received mandates from their respective Member States to negotiate and have played a key role in the preparatory stages and the negotiation of the TFA. In addition, the two institutions regularly organize national and regional seminars to build awareness of the provisions and to harmonize the application of the common rules. Implementation of the TFA by Togo and Nigeria, both original signatories, will likely boost prospects of both bilateral and transit trade for Niger. Once Benin and Burkina Faso become its members, it will create a seamless transactions environment along the existing trade corridors and open new mutually beneficial market opportunities for all countries in the region, including Niger. The importance of the TFA is explained in Annex II.C. 2.5 Key Findings and Recommendations 83. Given the constraints of its landlocked geography, small domestic market and limited control over traditional trade policy instruments, Niger should focus its exports diversification efforts on improving regional and non-regional trade opportunities, removing NTBs and improving trade facilitation (see Table 2.5). 84. Niger needs a concerted effort to deepen its regional and bilateral trade, especially with Nigeria, as even with higher levels of informal trade, regional trade is lower than predicted by economic conditions. Nigeria, as the largest market in the ECOWAS region, can be an engine of Niger’s trade growth—the size, diversity, and demographics are likely to offer the greatest market potential in agriculture. On market access, one of the main impediments to truly integrating ECOWAS and diversifying Niger’s exports have 32 been the existing barriers to regional trade in agriculture in Nigeria. Nigeria still maintains prohibitions on some imports and fails to apply the ETLS. 85. A concerted effort is needed to exploring greater market access to East Asian markets, which have become the principle drivers of global trade. In fact, the data show some signs of breaking into non- traditional markets in Asia such as Vietnam and GCC countries, especially for commodities. This should be further deepened through a pro-active effort by its export development institutions and competencies. In the short term, through the Chamber of Commerce, Industry and Crafts of Niger (CCIAN), Niger may develop the capacity of commercial consular offices and use the existing capabilities to gather commercial intelligence, facilitate interaction between buyers and sellers and maintain commercial database on each country or region. 86. Niger needs a corridor strategy in partnership with its main gateway partners (Benin and Togo) to address the numerous dysfunctional aspects of transit on corridors. This includes the professionalization of freight transport, modern transit procedures, improvements in governance on the corridor, and modern trade and customs operations, including interconnexion and revised bilateral arrangements. 87. Greater efforts in security will be needed to expand access to productive territory. Access to the Lake Chad shores should be guaranteed to expand the fishing sector, and protection should be provided for people, lands and livestock in the border regions. The lengthy border with Nigeria is especially vulnerable to attacks from violent groups, including Boko Haram. The communities along the Niger side of this border are especially dependent on trade; livestock is a major asset for them and theft of livestock can be devastating. Among large scale activities, planned oil pipelines connecting to Chad will also require sufficient security to maintain operations. 88. Major interventions on the trade facilitation agenda include: • Simplification of Customs Procedures: While customs officials and traders may appear to benefit from the current system to such a degree as to indicate a formidable barrier to change, in fact they have much to gain from improving governance and reducing corruption. The most affected participants in trade are the poor agricultural producers who can benefit from a more transparent and less cumbersome system, and with less intermediaries, middlemen and customs officials. Indeed, traders in agricultural products would profit from a clean implementation of ECOWAS rules on agricultural products, allowing tax-free transit for local products and regional recognition of product standards. Customs officials would benefit from increased trade flows arising from the support of automation, communication, improved personnel management, and better data on actual trade transactions. • Work towards the preparations of a National Single Window at Customs: Niger’s efforts on the national Single Window are at a nascent stage. Several initiatives at the level of customs and the Chamber of Commerce in terms of procedures do exist, but to realize the full benefits of the Single Window, the customs and other regulatory agencies will need to expedite the harmonization of import and export documents and undergo business process re-engineering of all trade-related processes and procedures before rolling out the technological aspects of the Single Window. • Introduce regulations enabling customs automation: Automation often reduces opportunities for corruption while reducing time and costs and duplicate procedures in trade transactions. The current legislation in Niger does not incorporate provisions for use of computer technology for the transmission of declarations, information and data. Thus, duties and taxes are processed manually. The ongoing work relating to the revision of the “Customs Code� should integrate provisions of e -payments by introducing legislation for electronic transmission of documents. 33 • Carry out an inventory of the bilateral and multilateral commitments of Niger in the areas of trade facilitation including the Kyoto Convention. The commitments under regional instruments of UEMOA/ECOWAS allow for a harmonized application of the TFA. • Review the prerogatives of the National Committee of Trade Facilitation as recommended by TFA Section 3, establishing its mandate and the leadership to steer action plans. Implement commitments under the TFA including a mechanism for interagency coordination and public-private dialogue. • Facilitate the establishment of the Dry Port in Dosso and Niamey. As part of the evolving efficient trade facilitation environment, The Government of Niger sought IFC support to structure and implement a dry port project in Dosso and Niamey. Implementing the Dry Port can reduce red tape and transportation costs, by moving the time-consuming sorting and processing of merchandise inland, away from the congested seaports of Cotonou (Benin), Lome (Togo), Tema (Ghana), and Abidjan (Côte d’Ivoire). It can also increase the security of supply systems and increase the customs and tax revenues because of the better control on the transit corridor. IFC’s mandate included helping to select a private operator through a transparent and competitive bidding process to develop and operate the dry port. The process, initiated in 2014, requires active government patronage to ensure its completion. Table 2.5. Matrix of policy interventions Institutions Results Objectives Recommendations/Actions Timing responsible Indicators Develop ECOWAS/Nigeria Undertake cost benefit assessment of Ministry of Short- Expanded trade/export development reducing tariffs under CET and especially Trade and term regional trade program. with Nigeria. Commerce in staple Present the results to the negotiations CCIAN. foods. committees in both inter-ministerial ECOWAS committees, Heads of Commerce meetings & related forums. Increase regional and extra- Define the requirements of the Strategic Min. Trade/ Short- Increase regional markets in Clusters identifying product varieties Agriculture/ term/ export values agricultural and livestock Define a strategy for a marketing Foreign Affairs Medium and volumes products program appropriate for each CCIAN/ANIPEX term Share of strategic sector for different regional exports to and international markets. countries Promote diversification of Develop capabilities of CCIAN, to gather CCIAN/Minist. Short- Expanded exports to Asian markets commercial information. Trade and term exports to Develop capabilities of commercial Commerce East Asian counsellors in respective overseas markets missions on B2B and other trade exhibition opportunities. Establish leadership and Establish the mandate of the NTFC and MF/MC/PSP/ Short New AFE mechanisms necessary to its leadership role to steer action plans CCIAN/SGG term standards implement WTO TFA implement commitments under the TFA promulgated, including a mechanism for interagency implemented coordination & public-private dialogue Take steps to Expedite the harmonization of Office Prime Short Initial steps in operationalize the National import and export documents Minister/Com term establishmen Single Window among all relevant agencies and merce/Econom t of the Single initiate business process re- y/Finance/Urb Window engineering of all trade-related an processes and procedures. Development 34 Institutions Results Objectives Recommendations/Actions Timing responsible Indicators Simplify border control Streamline data entry by eliminating the Customs Short Reduced time procedures repetitive records term of passage in Delete the systematic scanning borders and the books by adopting risk management principles Streamline regulations and Introduce legislation allowing the Ministries of Short Decrease in the documentation for rationalization of documents and Commerce and term number of customs procedures and declarations and development of tele- Justice transactions promote automation of transmissions. Allow electronic based on paper external trade transmission of transit declarations documents Accelerate the Develop necessary infrastructure for Ministries of Short Activate computerization of Informatics and strengthen the Finance and term/Me centralized customs procedures centralized connectivity and all the Customs dium connections of including Transit trade offices of Customs, starting with those Term customs offices on the imports/exports and transits with ASYCUDA Ensure migration to Asycuda World World Eliminate illegal and Launch an awareness among traders Prime Minister Medium Enhanced unauthorized fees and levies of the ECOWAS/UEOMA protocols Min. term trade especially on trade corridors and about transit traffic Trade/Justice/ exports by SME associated harassments Establish a reporting mechanism for Agric./UEMOA and Women traders facing road harassment. and ECOWAS traders Promote a competitive and Professionalize the Transport sector by Dept.of Short - Improved efficient transport sector implementing harmonized regional rules Transport & Mediu Transport of access to and the exercise of CER m term performance professions based on competence, and reduced of training and the solvency of the logistics costs companies. through increased efficiency 35 Chapter 3 Firms’ Growth and Competitiveness in Niger26 3.1 Introduction 89. This chapter presents a review of the Investment Climate (IC) in Niger and identifies the main challenges needed to unlock firm competitiveness, with an emphasis on exporting firms. The analysis relies on two main instruments: i) a review of regulations governing economic activity based on the latest Doing Business (DB) Report indicators; and ii) a recently completed Enterprise Survey (ES), which provides a deeper understanding of constraints to firm operations and includes a specific module for exporting firms. While the first part of this analysis presents overall IC conditions in Niger, the second part focuses on exporting firms, using the exporter module results. 3.2 Investment Climate at a Glance 3.2.1 Investment Climate Challenges through the Lens of a Firm’s Survey 90. The objective of this section is to analyze the results from the ES carried out in Niger in 2017, which covered the main urban centers of Niamey and Maradi (Annex AIII.A presents the sample description and survey methodology). Figure 3.1 and Table 3.1 below illustrate the key IC issues rated by Nigerien operators. • Informal competition mentioned by 62.5 percent of the firms as a major or severe constraint • Electricity, mentioned by 47.9 percent as a major or severe constraint • Political instability, mentioned by 44.1 percent of firms as a major or severe constraint • Corruption, mentioned by 36.2 percent of firms as a major or severe constraint • Telecommunications, mentioned by 34.5 percent of firms as a major or severe constraint Figure 3.1. IC constraints (Pct. rated as major or very severe) Informal Compe tors 62.5 Electricity 47.9 Poli cal Instability 44.1 Corrup on 36.2 Telecommunica ons 34.5 Access to Finance 27.4 Crime, The , and Disorder 25.8 Inadequately Educated 21.9 Transporta on 19.6 Customs and Trade 17.7 Tax Administra on 16.0 Tax Rates 15.4 Labor Regula ons 9.0 Access to Land 7.6 Business Licensing and Permits 7.0 Courts 6.4 0 10 20 30 40 50 60 Source: Niger Enterprise Survey 2017. 26This chapter is based on Benyagoub and Clark (2017) background paper for this study, which itself is an outgrown of the ES for Niger developed by Muzi and Islam (2017), 36 91. The nature and intensity of the top constraints should concern policy makers. These constrains illustrate two broad areas of overarching constraints to businesses operating in Niger. The first set relates to the inefficiency of institutions, illustrated by perceived obstacles such as informal activities, political instability and high levels of corruption. Next are infrastructure issues like electricity and telecommunications, rated second and fifth major or very severe constraint. 92. A second tier, but rated as less problematic set of structural weaknesses underscores the limited efficiency of factor and product markets. They referred to access to finance, trade regulations and transportations, as well as the inadequate skills of the workforce. These were not rated as particularly high- -with about 30 percent to 20 percent of respondents rating them as major or very severe--but their relative ranking provided added insights into what ails Nigerien businesses. Their relative ranking as second tier obstacles calls for scrutiny and attention on the part of policy makers. Table 3.1. IC constraints by firm type (Pct. rated as major or severe) Manufact All Small Medium Large Retail uring Informal Comp. 62.5 63.4 63.4 41.8 63.4 76.3 Electricity 47.9 47.6 46.1 62.1 51.1 30.7 Political Instability 44.1 44.7 40.7 53.3 33.0 48.4 Corruption 36.2 37.5 30.4 50.9 23.2 42.7 Telecommunications 34.5 35.1 34.4 24.7 20.4 39.5 Access to Finance 27.4 28.8 27.9 4.9 36.6 21.4 Crime, Theft, and 25.8 30.2 11.7 38.7 15.4 29.6 Disorder Skills of Workforce 21.9 28.3 6.9 20.5 22.5 16.5 Transportation 19.6 22.2 15.9 - 19.2 16.3 Customs / Trade Reg 17.7 18.9 15.9 10.7 22.2 29.4 Tax Administration 16.0 14.8 19.1 17.7 28.4 19.9 Tax Rates 15.4 15.1 12.2 35.5 15.8 19.1 Labor Regulations 9.0 9.9 4.7 19.3 3.0 13.9 Access to Land 7.6 8.4 5.8 5.7 11.0 13.9 Business Lic. 7.0 6.7 5.8 17.7 6.1 6.5 /Permits Courts 6.4 6.4 7.8 - 3.6 5.6 Source: Niger Enterprise Survey 2017. 93. The third and last tier of constraints includes obstacles rated at or below 20 percent of survey respondents citing them as major or severe. These low ratings could be attributed to recent regulatory reforms undertaken in business registration and the functioning of the courts: the removal of a previously high minimal capital requirement. It should be noted that even if these obstacles do not appear as significant obstacles, nonetheless the DB report as well as more quantitative indicators presented in the next section, indicate that some of these areas remain problematic for firms and still underscore the importance of implementing regulatory reforms within a coherent and strategic framework aimed at alleviating costly and burdensome administrative procedures. A section below takes a closer look at the regulatory framework and the measures initiated to improve conditions for businesses. 37 94. There are significant differences associated with firm characteristics. Retail firms are more affected by the top three constraints (except for electricity); while the relative importance of electricity for manufacturing and large firms is particularly noticeable. Firms in the retail sector are more likely to find corruption or informal activities constraining, and less likely to complain about finance. Firms in the retail and commercial sector are more prone to be impacted by unfair competition in the form of anti- competitive practices or tax evasion or smuggling 95. Similarly, in virtually in all areas measured, size plays a significant role in the way firms complain. The top three constraints are similar across large, medium and small firms, but the magnitude of the obstacles perceived differ in a significant way. For large firms, electricity is the top constraints with 62 percent of large firms finding it a sever or major constraint, compared to 48 percent and 46 percent for small and medium firms respectively, followed by political instability. Small and medium firms find informality more particularly constraining, while large firms complain much more about corruption. 3.2.2 Understanding the Implications of the Top Constraints 96. The ES of Niger point to several weaknesses in the institutional and governance framework combined with poor and costly infrastructures (Figure 3.2). Aside from the top three constraints, the overall magnitude of the ratings does not appear as excessively high: hence, Nigerien firms appear not ‘complaining� about the IC as much as their peers in the region. The next section helps us identify or confirms these perceptions-based ratings. The ES allows a more objective analysis when looking at perception-based results combined with quantitative indicators found in additional section of the questionnaire. And both, the ES or DB results reflect the perception reported by businesses.27 97. Informal competition. It is the most important constraint mentioned by 62.5 percent of firms as major or severe. Informal practices are not only the result of poor administrative oversight but point to weaknesses of the regulatory and institutional framework in providing a sound and even playing field for all operators. Often an inadequate or poor regulatory and administrative framework encourages firms to remain in the informal sector, or to engage in unfair/anti-competitive practices which undermines fair competition. Furthermore, high levels of informality diminish confidence in the institutions and can act as a major break on productivity growth. Informality is also a source of added risk. Noncompliance with taxes and regulations exposes informal firms to eviction, shut downs, and makes them easy targets for bribes or harassments from public agents. 98. Informal activity is indeed prevalent in Niger. A study conducted by the Ministry of Statistics (Enquête National sur l’emploi et le secteur informel� ENESI) undertaken over 24,000 informal units confirms that informal practices are dominant in Niger. The survey identified three main behavior as prevalent: firms not being registered (97 percent), firms evading taxes (76 percent), and firms not registering most their permanent employees with the social security or adhering to labor regulation (20 percent). The same study found a direct association with a poor IC, weak service delivery and high level of informality. The study point to very high proportions of informal units having little or no access to basic services such as water, electricity. Further most of them do not have access to formal finance. The ES corroborates these results with an overwhelming proportion of firms (85.1 percent) reported having to compete against informal firms. This result is a significantly higher proportion than the average for SSA and low income countries, which reported respectively 67.1 percent and 53.2 percent of firms competing against informal businesses. Similarly, a much higher proportion of Nigerien firms (63.7 percent) identified informality as a major constraint compared to 37.5 percent in the SSA region. 27Since businesses report their private perspective, it is always important to align survey results with complementary analysis of the factors identified. For example, while firms generally complain about taxes throughout the world, it is only by understanding actual tax burden and its distribution as administered that one can fully understand whether adjustments are needed. 38 Figure 3.2. Informal competition by firm characteristics (percent) 80 63.4 63.4 63.4 76.3 62.5 59.1 60 46.7 41.8 40 20 0 Source: Niger Enterprise Survey 2017. 99. Firms operating in the service sector complain more about informal behaviors (76.3 percent) than manufacturing firms (63 percent). The main issue is the perception that competition is unfair through unequal treatment or evasion. Firms operating in the commerce/retail sector are sensitive to the perception of dumping and smuggling. Such behavior is widespread within the wholesale and retail sectors as they are challenging to control (tax/labor regulation/customs evasion). And large firms are reported less complaints than smaller firms (41.8% vs 63.4%) and exporters, in line with observed results internationally. 100. Electricity. This is the second leading constraints mentioned by 47.9 percent of firms as problematic. Accessing a reliable and inexpensive supply of energy is critical since it affects the competitive position of businesses in a direct way. In Niger, close to 60 percent of power needs is imported. Access to electricity is low, only about 10 percent of households have permanent access to the grid. Figure 3.3 depicts how electricity is perceived as a constraint across several firms’ characteristics. Large firms and manufacturing complain much more about issues related to electricity. This is not surprising since large firms and / or firms in the industrial sector are energy intensive. Long term investment plans of large enterprises may be affected by an unpredictable provision of an affordable and reliable source of energy. Retail firms, on the other hand, are less prone to complain as they are typically less intensive in energy. Figure 3.3. Electricity (Pct. rated as major or very severe) 60 62.1 47.9 51.1 51.3 47.6 46.1 50 40.6 40 30.7 30 20 10 0 Source: Niger Enterprise Survey 2017. 101. There are several areas where Niger’s electricity indicators fall well below both regional and international standard. Table 3.2 presents several indicators placing Niger in a regional and international setting. In Niger, a high proportion of firms experienced at least one power outages (78 percent) last year. These firms experienced on average a staggering number of power outages, 25.4 in a typical month, much higher than both the regional and international averages. These power outages or surges last on average 4 hrs. and impose additional cost of 9.2 percent of the firms’ annual sales. Long delays before power is 39 restored poses a problem for manufacturing firms, since it can result in entire days of production losses when workers leave the premises, or when surges and outages require the equipment to be reset. Table 3.2. Electricity: regional benchmarking No. of Electricity Percent of Losses due Pct. rating electrical Pct. of firms from a firms to electrical electricity as a outages with a generator (% experiencing outages (% major (typical generator if generator is electrical sales) constraint month) used) outages Niger 25.4 74.1 9.2 53.3 47.9 78 SSA 8.5 51.3 8.5 26.2 39.3 80.4 All ES 6.4 33.4 4.7 20.4 31.1 59.0 Source: Niger ES 2017. Figure 3.4. Main electricity Indicators by firm size 90.2 68.4 68.1 50 35.4 27.1 14.4 8.5 6.4 3.6 0 Small Medium Large Losses due to Power Outages, in % annual sales (*large firms represent less than 5 obs) Pct of Firms that Own or Share a generator Ave. # of power outages per month Source: Niger Enterprise Survey 2017. 102. The reliability and cost of outages affect firm in different ways per their size (see Fig. 3. 4). Not surprisingly large firms are less affected, perhaps because almost all of them (90.2 percent) own a generator. The differences between small and large is striking. The losses large businesses incur are less than half those incurred by small or medium firms: -3.6 percent of sales lost for large firms vs 6.4 percent and 8.5 percent for medium and small firms respectively. So, to mitigate against these losses, many firms decide to invest in costly equipment: the median price for a generator paid by firms in Niger can easily reach 12,000,000 XOF, which can be prohibitive for small firms. But despite their important cost, a large majority of firms (69 percent) have no choice but to own a generator, since 53 percent of the electricity consumed comes from the firm’s generator (double the regional standard), confirming the needed reliance on secondary equipment, and a further indication that the power grid is unreliable. While the high rate of generator ownership may partly reflect costs imposed on firms, it does not explain abnormally large production losses attributed to power supply failures averaging 9.2 percent of annual sales. These costs are felt acutely by firms. On a global scale, 47.9 percent of firms in Niger reported electricity as a major or severe constraints – significantly higher compared to the SSA average of 39 percent. 103. Political instability. Respondents rated political instability as the third most important factor constraining the operation of their businesses, with over 44 percent of firms rating it as a major or very severe constraint. International experience with surveys undertaken in relatively vulnerable environments such as Niger, shows that the latter lack an efficient institutional and political framework necessary to provide operators with a sound and predictable policy outcome. Prior to 2012 when Niger held democratic election, the country was subject to political instability with several coups and regime changes. Security 40 and political challenges resulting from the conflict in Libya, Mali and northern Nigeria still have lingering effects 28. For instance, the conflicts created a significant number of refugees--both external and internal-- estimated at close to 300,000 individuals. Today firms operate with the concerns that the political instability experienced during the 2009-2011 may return as the aftermath of past conflicts continues to generate uncertainty and apprehension about the future political and economic direction of the country. Figure 3.5. Political instability (Pct. rated as major or very severe) 53.3 48.4 50 44.1 44.7 45.7 40.7 40 33.0 30 26.8 20 10 0 Source: Niger Enterprise Survey 2017. 104. Political instability is a concern that is widespread across several firm characteristics, though with some measures of difference affecting manufacturing firms more. Figure 3.5 indicates that larger firms are more concerned as 53 percent of expressed major or severe concerns over political instability. Which is probably since large firms make investment plans on a longer-term horizon and thus require some measures of stability in assessing policies that may affect their planning. Whereas exporters are the least affected by political instability, there is no straightforward interpretation for this finding, except that manufacturing firms also complained to a significantly less degree (33 vs 44.1 percent for all firms). Firms in the manufacturing sector are traditionally older, have dealt with political changes and learned to adapt. 105. Corruption. Indices such as Transparency International rank Niger poorly at the 101th rank over 176, while the ES point to some measure of concerns. Managers ranked corruption as the is the fourth leading constraint, mentioned by 36.2 percent of firms as major or severe. Corruption is understood as a significant obstacle to growth, productivity and the rule of law, since it can fundamentally curtail foreign aid and government efforts to reduce poverty. As such, corruption erodes the credibility of institutions in charge of regulating private sector activities and limits investments; while informal payments associated with bribes add an unnecessary burden on firms and represent yet another additional indirect cost managers must contend with. The prevalence of corruption, informal practices, or perceived instability is usually compounded by relatively weak law enforcement mechanisms and weak administrative oversight – in fact there is an association between instability, informality and corruption29. Yet, by most ES indicators, Niger does not perform exceedingly worse than the regional or international benchmarks (see Table 3.3). Overall, 16% of firms are subject to at least one instance of informal payment compared to 17.4 percent and 13.8 percent for the SSA region and the ES average of all countries respectively. Even though corruption 28 There is a continuing threat of terrorist activity by al-Qaida in the Lands of the Islamic Maghreb (AQIM) and associated groups, which have conducted kidnappings for ransom and terrorist attacks in Niger, Algeria and Mali. The security situation of neighboring Mali and the presence of violent extremist groups AQIM, Ansar al-Din and MUJAO have been a serious concern for the GON, which is an active participant in the United Nations peacekeeping mission in Mali. There is concern that Boko Haram’s violent tactics may spill over from northern Nigeria, although there have been no attacks in Niger. “Department of State, Investment Climate Statement, 2016.� 29 “shadow economies� Schneider 2006) 41 is widely viewed as prevalent in Niger,30 the ES is not able to systematically record instances of corruption because these occurrences are either underreported or occur through a third party. Nevertheless, it is flagrant when looking at government contracts, as it constitutes a source of rent for public agents and intermediaries. For instance, close to a quarter of firms are is expected to provide a bribe to secure a government contract (26 percent, while 20 percent refused to answer), slightly lower than the SSA average of 33 percent. Table 3.3. Benchmarking of corruption indicators in Niger Percent of Percent of Percent of Percent of Percent of Percent of Percent of firms firms firms firms firms firms firms expected expected to expected expected expected to expected identifying to give gifts give gifts to to give to give give gifts to to give corruption in secure gifts to get gifts to get get a gifts to get as a major meetings government an an import construction an constraint with tax contract operating license permit electrical officials license connection All ES 12.9 28.9 14.4 14.2 23.3 16.1 32.7 Countries Sub- 17.2 33.8 16.1 16.8 25.9 22.5 41.3 Saharan Africa Niger 4.6 26 32.8 8.1 12.6 12.2 36.2 Source: Niger Enterprise Survey 2017. 106. The incidence of corruption that the ES can measure is most likely related to the cost of compliance. The next section covering the regulatory environment--as measured by the DB report--point to numerous regulatory requirements that impose a high cost on the entry and operation of firms. Furthermore, the institutional capacity to regulate and administer adequate services is far from optimal. In turn these regulatory and oversight weaknesses facilitate discretionary behavior on the part of both public and private agents. The administrative burden imposed on firms is showcased by the important amount of time firms spend on administrative and regulatory compliance: -13 percent of manager’s time spent dealing with bureaucratic requirements compared to the regional average of 8.7 percent. Figure 3.6. Corruption (Pct. rated as major or very severe) 50.9 50 42.7 40.3 36.2 37.5 37.7 40 30.4 30 23.2 20 10 0 Source: Niger Enterprise Survey 2017. 30“AfroBarmete survey on corruption� 2015, evaluate that close to 83% of citizens have experienced some instances of corruption in exchange for public service delivery among several aspects. 42 107. The ES finds significant differences in the way corruption is perceived depending on firm characteristics (Figure 3.8). Large firms complain more than small ones (50.9 percent vs 37.5 percent) which is intuitive given that they constitute a steady source of rents for public agents. While firms in manufacturing appear less affected by corruption vs the retail sector – also not surprising since it is relatively easier for public agents to target commercial/ retail activities. The retail sector is known to generate more informal activities, less compliance with regulation and therefore more collusion with public agents. And even though the manufacturing sector may be more regulated, firms are known and easily tracked, and the nature of regulation affecting this sector is itself less prone to flagrant disregard for regulatory and legal compliances. 108. Telecommunications. this constraint ranks as the 5th leading constraint by Nigerien businesses, close to 35 percent of Nigerien entrepreneurs evaluated it as a major or very severe constraint (Figure 3.7). It is of interest because several ES analyses performed internationally suggest that the use of internet in developing or managing a business depends on the quality of telecommunications, and it relates to innovation, competition and higher productivity. However, looking at the way telecommunications are perceived across different types of firms indicate that most types of firms seem to be equally affected by the telecommunications network. Small, medium and retail and exporting firms level of complain falls around the mean average for all firms. Though large and manufacturing sector firms complain significantly less. This could be attributed to the resources that that large firms are capable of allocating toward more sophisticated equipment to improve telecommunications. This result is supported by quantitative indicators (see Table 3.4) which show that both large and manufacturing firms are more prone to using ICT services and equipment to conduct their businesses. 109. The ES finds that telecommunications are not perceived as a location-specific obstacle. Firms located in Niamey and Maradi rated it equally constraining (34 percent vs 31 percent). The quality of telecommunication services is in theory location-specific as it is likely that entire areas of the country are not serviced by new technologies facilitating telecom penetration. In addition, the ES shows that the use of a website for business purposes – either to help develop the business or conduct day to day business is on par with regional norms and below international benchmarking. (33 percent vs 32.6 percent and 42 percent for SSA and all ES). communicating through e mail seem to have become prevalent in Niger as 58 percent of firms engage in this practice – again in line with regional averages and below international norms. (61.3 percent and 72 percent). By size, large firms overwhelmingly utilize a website or use email to communicate with their suppliers/clients, while small and medium firms are significantly less prone to use either. Only 25 percent of small firm use a website and 53 percent an email to communicate. Figure 3.7. Telecommunications (Pct. rated as major or very severe) 40 39.5 36.7 34.5 35.1 34.4 34.7 35 31.2 31.7 30 24.7 25 20.4 20 15 10 5 0 Source: Niger Enterprise Survey 2017. 43 Table 3.4. Telecommunications Indicators by firm type (%) Communicate with clients Use of website and suppliers by email Niger 56.48 33.04 SSA 61.3 32.6 All ES 72 44.2 Small 53.62 25.86 Medium 57.02 42.22 Large 95.09 90.19 Manufacturing 41.46 15.96 Retail 53.44 27.35 Exporters 72.06 40.25 Niamey 55.6 35.4 Maradi 64.3 8.1 Source: Niger Enterprise Survey 2017. 110. Despite growth in recent years, both mobile and internet penetration are still among the lowest in SSA region (Internet connectivity in Sub-Saharan Africa source ITU). The ratio of households using internet stands at 3.1 percent and in the ICT index Niger is ranked last: 176th out of 176. While mobile telephone and internet penetration have grown significantly over the last few years the reliability and cost of these services have been inconsistent. The government took over the main operators and has reduced the length of licenses attributed to two mobile operators citing failure to meet quality standards. In addition, existing arrangements do not afford consumers the benefit of true competition. The telecommunications sector remains heavily controlled and underdeveloped. The degree of competition ranges from a total monopoly in fixed telephony to close to an oligopoly in mobile telephony with a partial opening in internet service, albeit with some state censorship controls. For instance, the main operator (CLETEL) controls close to 60 percent of the market while Orange SA, Atlantique Telecom and Sahel Telecom share the remaining 27.5 percent, 9.9 percent and 3.9 percent respectively. 3.3 A Snapshot of the Regulatory Environment as Measured by Doing Business Indicators 111. This section looks at the regulatory framework based on the DB reports. It benchmarks Niger’s recent achievements and challenges in a global and regionals setting. DB findings focus on the regulatory and legal framework governing private firms. As such its scope is narrower and more focused than the ES and therefore complements it. DB results usually complement the findings of the survey, and often it shares similarities (on delays and cost associated with licensing, trade transactions and electricity). 112. In recent years, Niger has embarked on an ambitious reform program that is beginning to yield some results. Niger’s global ranking improved from 160th in 2016 to 150th in 2017 (out of 190 countries). Unquestionably, Niger has made good progress and is on a positive path to pursue regulatory reforms. Niger accelerated the pace of its reforms program significantly over the last two years thanks to concerted actions taken at the national level through the “ Dispositif institutionel d ‘amelioration du climate des affaires� which is mandated to implement and oversees the business climate reform process, and the “Conseil National des Investisseurs Privés (CNIP)� under the leadership of the Prime Minister, tasked with strategic orientation and analysis which is composed of stakeholders from the public and private sphere. Yet, Nigerien investors continue to face an uphill challenge when dealing with regulatory issues required for the entry and operation of their firms. The business environment continues to suffer from inefficient and costly procedures coupled with a poor regulatory compliance framework which act as substantial obstacles for the entry and operation of firms and impacts on the competitiveness of businesses. 44 113. The regulatory environment in Niger. Figure 3.8 provides an illustration of the country regulatory framework based on the DB report (2017). The Distance-to-Frontier (DTF)31 is 49.5 compared to last year’s DTF of 47 which is slightly above the SSA average and indicate a positive trend. little over half of the areas measured by the report show some moderate to fast improvements. In fact, this year several indicators improved significantly. However, the rankings of most dimensions measured remain low by global standards. On a regional level, the 2017 DB report ranks Mauritius as the top performer in the SSA region, with a global ranking of 49th over 190. Others performers in the SSA region include Rwanda (56th), Botswana (71), and South Africa (74th). Compared to countries of the Sub-region, Niger is not well positioned (150st), behind of Ivory Coast (142nd), Burkina-Faso (146th), Senegal (147th) and ahead of Nigeria (169th), Mauritania (160th), Chad (180th) and Guinea (163rd). Figure 3.8. Comparative DB rankings – selected countries Mali (Rank 141) 53.0 Senegal (Rank 147) 50.7 Niger (Rank 150) 49.6 SSA Average 49.5 Cameroon (Rank 166) 45.3 Nigeria (Rank 169) 44.6 Chad (Rank 180) 39.1 CAR (Rank 185) 36.3 0 10 20 30 40 50 Source: Enterprise Survey, various years, Niger ES 2017. • Getting electricity. Accessing reliable and affordable power supply is a key prerequisite to continue improving Niger s competitive position, but thus far there has been modest progress. Niger is ranked 166th with a DTF score of 43.5 reflecting modest progress on this indicator. Connecting to the grid remains lengthy and excessively costly. Based on DB report assumptions32 it takes 115 days to obtain a connection compared to a regional average of 93 days, involves four procedures and cost nearly 5,426 percent of GNI. Most concerning is the reliability index33 sub-indicator which scores 0/8, well below the regional and international benchmark (0.6 and 12.7 respectively). There aren’t any automated mechanisms for monitoring or restoring service in case of power outages. • Getting credit: Niger is ranked 139th for 2017 compared to 134th for 2016 and an unchanged DFT score of 30. Borrower information registry and coverage ratios score particularly low compared to global performers with a fully operational credit bureau. Niger has a score of 6.0 over 12 on the strength of legal rights index, 0.0/8.0 on the depth of credit information index, and 0.3% credit coverage ratio (% of adult population). Niger has recently established a Credit Bureau but its impact is yet to be felt. Weak 31 For detailed on DTF methodology see: http://www.doingbusiness.org/methodology. 32 www.doingbusiness.org/methodology/getting-electricity. 33 “The reliability of supply and transparency of tariffs index is calculated based on the following six components: duration an d frequency of power outages, tools to monitor power outages, tools to restore power supply, regulatory monitoring of utilities’ performance, financial deterrents aimed at limiting outages, and transparency and accessibility of tariffs� DB 2017. 45 scores on credit information explain the institutional/supply side of challenges related to SME lending. Nevertheless, the reforms enacted over the past two years, with the introduction of regulations regulating the operation of credit bureaus among members of the UEMOA will have an impact on reducing information asymmetries between lender and borrowers. • Paying taxes: This is one of the most problematic indicator. Niger is ranked 165th with little progress realized thus far since 2011 – Niger did slightly improve 3 ranks when it reduced its corporate tax rate. The DTF for this indicator (50.1%)is below the SSA average (55.8%). For 2017 the “post filling index� which indicate both simplicity and speed in tax compliance (including VAT reimbursement) remains well below the regional average (30.2 vs 54.1), but Niger did established measures that would soon allow for a simplified recourse mechanism which should streamline the recourse process. The number of payments necessary to comply for filing and payments stands at 41 which is on par with the regional average (38) but significantly higher than international standards (10.2). Social security taxes and VAT stand out with 12 payments required for each. • Dealing with construction permits: Niger made some stride recently and it is likely that these measures will have an impact on both operators in the ground and Niger s standing in future DB’s rankings. But for now, the process of obtaining a construction permits remains a challenging proposition. Niger is ranked at the 178th position out of 190 countries; the number of procedures and the delays required to obtain a construction permits do not stand out as being particularly problematic by regional or international standards. However, the cost and quality of regulations related to obtaining a construction permits remain poor. The building Quality index34 score of 5 compared to the SSA average of 7.2 and international standard of 11.3 point to weak quality control and inspection regulations. Likewise, the cost involved in the process of securing a construction permits falls well outside regional and international norms, amounting to 16.6% of the value of the warehouse compared to 7.6% for the SSA average and 1.6% for the OECD average. • Protecting minority investors: Improved from the 157th to 145th rank thanks to a series of measures enacted over the last two years. However much remains to be done, as Niger’s sub -indices related to shareholder transparency, Director liability (1/10) and governance (2/10) score the lowest. Niger does have a good corporate disclosure regulations in place reflected by a score of 7 over 10. It will be paramount for Niger to continue improving shareholder governance framework as the protection of minority investors is critical for the development of companies. It allows the mobilization of capital needed to innovate and compete. Effective and sound regulations defining third party transaction endorses coherent and effective disclosure requirement, require shareholder’s involvement in important decision and in defines norms of accountability for insiders. • Registering property: Niger’s ranking remains unchanged for 2017 (125th). Niger has a DTF score of 52.3%. The cost involved with transferring a property title is significant amounting to 9% of the property value, compared to 8% for SSA and 4.7% for the OCDE. At the same time, the quality of the administration is very weak based on the index scores of 4/30. Placing Niger well below many of its regional as well as behind the best performers in the OCDE (respectively 8.4 and 22.7 over 30). The number of procedures and the compliance time are inferior to the average for SSA. The effective functioning of the land administration is essential to ensure that property rights are respected. Costly and cumbersome procedures associated with the transfer of titles promotes informal activities – this 34“The building quality control index is based on six other indices—the quality of building regulations, quality control before construction, quality control during construction, quality control after construction, liability and insurance regimes, and professional certifications indices.� DB 2017. 46 has a direct association with the process of acquiring credit from banks as informal titles are not likely to be considered for collateral. • Enforcing contracts: is ranked 150th with a DTF of 45.5, compared to last year’s ranking of 159th and a DTF of 41.8; point to significant improvements, and a positive process is in place through the IC Support Program Project which helped established the commercial court of Niamey as well as the arbitration and conciliation system. Thus, Niger is relatively well placed regionally with regards to the quality of court and delays, but more need to be done to reduce cost, currently 52.6 percent of the claim vs 44.3 and 21.3 for SSA and OECD countries respectively); as well as improving the quality of the judicial process in case managements and court automation processes. The latter would eventually influence the time it takes for trial and judgment processes (365 days) and ultimately with regards to the delays associated with the entire process (from case management to enforcement of decision), which takes currently 400 days. 3.4 Export Performance and Constraints to Trade 114. The last section focuses on the IC as experienced by exporting firms using the exporter module of the ES undertaken recently. The module allows for a deeper understanding of constraints and conditions specific to exporting firms. The subsample of exporter surveyed 15 direct exporting firms. The nature of the definition used for exporting firms by the ES (defining exporting firms as 1 percent or above combined with the small sample size does not provide conclusive results – it does however illustrate constraints associated with those firms. Further discussion follows next. 115. As a landlocked country, Niger is dependent on land-based exports, while maritime access is dependent on neighbors, road networks and transportation infrastructure, thus adding transport costs for exporters and limiting access to foreign markets. Historically, most of Niger’s economic activity has been domestically focused. The economy has centered around agriculture and livestock, with trade geared primarily towards re-exports and uranium. Already coming from a low base, in recent years Niger’s export performance has been further complicated by political economy issues in the region: domestic security threats, internal conflicts, and a rise of extremist groups have all had an impact on Niger’s border areas and trade routes. This has been coupled with the economic slowdown in Niger ia, one of Niger’s main partners for exports and re-exports. Niger’s export performance has faced challenges. 116. Niger’s performance on DB’ trading across borders indicators is in line with peers . Based on DB 2017, Niger’s performance with respect to trading across borders is within the middle of the spectrum of peer countries in terms of the DTF metric and the country’s relative rank. Based on these indicators, Niger has a DTF of 60.5 percent and a relative ranking of 132 out of 190 countries (Figure 3.9). Per DB, Niger made several changes related to trading across borders in recent years. In 2013, Niger reduced the time to process imports by enhancing the use of an ICT based interchange system for customs clearance. This progress was somewhat offset by a change enacted in 2016, which made pre-shipment inspections mandatory and thus increased the time and cost for documentary and border compliance. However, in 2017, this was requirement was removed. 117. Time to adhere to border compliance regulations in Niger is less than the SSA average, while cost is about the same. Trading across borders measures border compliance, captured by time spend and cost. For its given DTF score and ranking, Niger performs modestly well on both indicators vis-à-vis the Sub- Saharan Africa average. Border compliance measures customs clearance and inspections, inspections by other agencies border handling, and the processing of all documents during clearance, inspections and border handling. Time spent adhering to border compliance requirements for exports is 48 hours in Niger, compared to an average of 103 hours across SSA. Fees for border compliance, on the other hand, are 47 roughly in line with the SSA average: the cost is $543USD to export in Niger, compared to an average $583USD in SSA (Table 3.5). 118. Niger performs better than the SSA average on time and costs related to documentary compliance for trade. Documentary compliance measures the time and cost to obtain, prepare and submit documents during the export process, including transport, customs clearance, inspections and border handing, including documents requested by the destination country. It covers all documents required by law and in practice, including electronic submissions of information and non-shipment-specific documents. Niger performs modestly well on documentary compliance, relative to the SSA average, with an average of 51 hours (compared to 93 across SSA) and a cost of $39USD (compared to an average of $230 across SSA) (Table 3.5). However, limitations exist to the methodology used by the DB report, in fully capturing issues and constraints related to trading across borders. Therefore, a firm-level ES was conducted in Niger in 2017, which included a special module dedicated to exporting firms. The findings of this survey are outlined in the following discussion. Figure 3.9. DB – trading across borders, 2017DTF Table 3.5. DB – trading across borders indicators, and Rank 2017 Mali (89) 70.8 Sub- OECD Saharan high Senegal (130) 60.9 Column1 Niger Africa income Niger (Rank 132) 60.5 Time CAR (Rank 138) 58.6 (hours) 48 103 12 Compliance Chad (171) 40.1 Cost Border Nigeria (181) 19.9 (USD) 543 583 150 Cameroon (Rank 186) 16.0 Time Documentary (hours) 51 93 3 Compliance 0 20 40 60 Cost (USD) 39 230 36 Source: Enterprise Survey, various years, Niger ES 2017. 119. Export participation: Firms in Niger export at a slightly lower rate than peers, and gain less sales revenue from direct exports. The ES found that Niger engages in direct and indirect exporting at a lower rate than the SSA average. The 2017 survey found that 12.2 percent of firms engaged in direct or indirect exports, defined as greater than 10% of sales accruing from trade, and 5.2 percent of firms engaged in direct exports (Figures 3.10, 3.11). This could be attributed to firms selling lower value products, and increases in exporting costs (for example related to security issues), which could eat into firms’ profits. Figure 3.10. Export participation Source: Enterprise Survey, various years, Niger ES 2017. 48 Figure 3.11. Proportions of sales directly exported Source: Enterprise Survey, various years, Niger ES 2017. 120. Compared to past ESs, the storyline is mixed. Compared to Niger’s last ES in 2009, direct and indirect exports have increased. At that time, only 7.7 percent of firms were engaged in direct or indirect exports and a mere 2.8 percent of firms were directly exporting. However, in 2006, 18.4% of firms were engaged in some form of exports and 16.8% of firms were directly exporting. Likewise, 9.4 percent of firms’ sales were from direct exports – roughly 6.7 percentage points higher than found in 2017. This loss in export revenues and fluctuation in export intensities could be attributed to being landlocked in a neighborhood of countries facing rising extremism and security incidents – during this period Nigeria’s neighbor trading partners, Niger, Mali, Burkina Faso and Benin, all were affected by the growth of extremist groups. This came at a cost to exporters in terms of border crossing and increased transit cost, or even trade route interruptions. Table 3.6. Export market characteristics, in percentage Parent Private Private Firms, Type of Client in Governme Company Firms, less more than 150 Other Main Export Market nt or than 150 employees Affiliates employees 0 5.87 18.28 7.17 68.68 Type of Exported Finished Semi-Finished Both Good 64.98 16.19 18.84 Primary Reason for Excess High Specific Subsidiary New Competitive Exporting Domestic Foreign Incentives with Parent Product in Supply Demand Firm Destination Market 13.52 86.48 0 0 0 Source: Niger Enterprise Survey 2017. 121. Export destinations and markets: A typical firm in Niger is exporting finished products to large private companies, due to high foreign demand. Using a wider definition of direct exports (at least 1 percent of sales from direct exports—see Annex A3.A for details on firms’ characteristics), a typical firm in Niger is selling finished products to private sector companies with more than 150 employees, to firms within the ECOWAS. 18.3% of firms are exporting to large private firms, with only 7.2 percent indicating they were exporting to private firms with less than 150 employees and an even smaller percent exporting to a parent company of affiliate (5.9 percent). 65 percent are exporting finished products, 16.2 percent are exporting semi-finished, and 18.8 percent are exporting both. When asked, 86.5 percent of firms indicated that exports were driven by high foreign demand. While, the remaining portion (13.5 percent) indicated that they exported their products due to excess domestic supply. Firms surveyed indicated that the largest share of their export revenue is from exporting to ECOWAS countries: 66.2 percent of firms indicated that their 49 direct export revenue came from ECOWAS, compared to 16.1 percent from the EU and 17.7 percent from “other� countries (Table 3.6). 122. Constraints to Firm Operations in Domestic Market: Direct exporters and non-exporting firms face slightly different constraints in the domestic market, however the top concern remains the same – practices of competitors in the informal sector (Figures 3.12-3.13). Informal competitors were perceived by 46.7% of direct exporters and 63.6% of non-exporters as major or very severe constraints to firm operations. The informal sector is a pervasive issue across Niger, affecting formally registered firms through administrative shortcuts they may be taking, that undermine competitiveness of firms adhering to the rules. Some of these firms may even be operating at a large scale, yet prefer to remain informal to avoid red tape and escape taxes. 123. Corruption and electricity fall within the top 5 constraints of both groups. Among the top 5 constraints, there is some overlap between the two groups, both perceive corruption and electricity to be constraints, although in varying degrees. Corruption was perceived by 40.3 percent of direct exporters and 35.9 percent of non-exporters as a major or very severe constraint. Electricity was also perceived by 40.6 percent of direct exporters and 48.4 percent of non-exporters as a constraint. 124. Yet, exporters perceive customs and trade regulations and access to finance as greater constraints than non-exporters. Customs and trade regulations (45 percent of direct exporters) and access to finance (42.9 percent of direct exporters) are found within the top 5 constraints of exporters, while political instability (45.2 percent of non-exporters) and telecommunications (34.7 percent of non-exporters) are found within the top constraints by non-exporters. Telecommunications is perceived as a constraint likely due to infrastructure issues, as well as a 2014 tax on incoming calls. 125. Practices of competitors in the informal sector has been an ongoing issue for firms in Niger for some time, and the perception of this constraint has worsened in recent years. For the past three ESs in Niger (2006, 2009, and 2017), informal competition was cited as the top constraint to business operations (by 22%, 21%, and 33% of firms, respectively). This indicator also showed the largest jump in the recent survey: an increase of 12.2 percentage points (Figure 3.14-3.15). 126. Political instability and tax rates showed improvements between 2017 and 2009. Only about 4% of firms cite these issues at the very top constraint to business in Niger, representing a 11.6 percentage point decrease for political instability and 8.5 percentage point decrease for tax rates (Figure 3.15). Reforms have been underway to improve tax administration. For example, the Arbitration Committee for Tax Appeals opened its doors in 2016, which has improved dialogue with Nigeriens through hosting National Taxpayer Days and publishing a circular Le Fisc, to improving understanding of tax obligations. These efforts provide clarity on taxes, and decreasing the perception of tax rates as a constraint to firm operations. However, these shifts in perceptions could also be capturing relative ranking changes and instead represent a static perception of various indicators. 50 Figure 3.12. Major or very severe constraints to Figure 3.13. Major or very severe constraints to operations, direct exporting firms (% of firms citing operations, non-exporters (% of firms citing constraint) constraint) Source: Niger Enterprise Survey 2017. Figure 3.14. Biggest obstacle to operations, all firms, Figure 3.15. Biggest obstacle to operations, 2009 and 2017 (% of firms citing constraint) percentage point change 2009 to 2017 Source: Niger Enterprise Survey 2017. 51 Figure 3.16. “Major� or “Very Severe� obstacles for exports to main markets (percent of firms) Support in new markets 60.0 Marketing Conditions 46.7 Lack of Finance 40.0 Transportation Costs 33.3 Complex trade agreements 20.0 High export taxes 20.0 Customs procedures 20.0 Quotas 13.3 0 20 40 60 Source: Niger Enterprise Survey 2017. 127. Constraints in Exporting to Main Partner Markets: Direct exporters in Niger cite issues related to partner markets, access to finance and transportation amongst the top constrains perceived as major or very severe obstacles to exports. Issues in partner markets include support in new markets (cited by 60 percent of firms) and market conditions (cited by 46.7 percent of firms) as constraints (Figure 3.16). Market conditions could be capturing demand issues in Niger’s largest trading partner, Nigeria, which has been facing a recession in recent years. 128. When asked what is the number one obstacle to exports, the biggest two constraints to exports were customs procedures and transport services (Table 3.7). Customs was cited by 31.8% of firms as the top constraint to exports. Customs procedures are a challenge to firms, particularly due to antiquated administrative capacities – yet reforms have been underway. Reforms are ongoing to improve and modernize customs in Niger, but it will likely take time before these improvements are perceived at the firm level. In 2016, the most recent version of the Automated System for Customs Data, ASYCUDA World, was adopted. ASYCUDA World is an automated system designed by the UNCTAD to manage customs administration and help customs authorities automate core processes, improving time efficiency and accuracy. Thus far, it has expanded and become operational in most customs offices in Niger (with fiber optic coverage). The full adoption of ASYCUDA World from ASYCUDA ++ is expected to be completed by end 2017. Likewise, steps have been taken to improve tracking systems, through a public-private partnership. Table 3.7. Biggest obstacles to exports Customs procedures 31.77 Issues with transport services 25.94 Lack of export financing 22.6 High or discriminatory taxes or charges 7.9 Other 7.9 Cargo handling and port procedures 3.89 Source: Niger Enterprise Survey 2017. 52 129. Various aspects of transport negatively affect firms’ abilities to export from Niger. Transport services were cited by 26.0 percent of firms as the top constraint to exports. As a landlocked country, reliant on road networks of neighboring countries to reach ports, transportation and transport services are natural constraints. In part, these issues will be improved through reform efforts related to the efficiency of transport logistics and customs procedures. For example, the facilitation of the Niger Dry Port Project, which aims to improve and outsource management to the private sector of two dry ports: Dosso (corridor of Benin) and Niamey Rive Droite (corridors of Togo, Ghana, and Cote d’Ivoire). Its aim is to reduce congestion at regional seaports and move logistical processes inland with improved efficiency and access. Transport services have been addressed through government initiatives, e.g. the construction of a 49- hectare parking area in Maradi for trucks en route to Nigeria. 3.5 Central Policy Message: Sound Regulations for a Trade-based Diversification Agenda 130. Niger needs to engage in an irreversible process of diversification and higher value addition by moving away from extractives industries with competitiveness. This is possible by increasing the export base and promoting foreign investments into large “game changing� project in key strategic products and by leveraging the private sector. Unfortunately, Niger’s private sector is not well connected to global networks – the country’s existing trade is mostly confined to regional and neighboring countries of the WAEMU. 131. For diversification to succeed Niger needs to pursue and broaden its IC reform program to reenergize its private sector and reduce informality. This will be achieved by improving (i) the quality of the regulations related to entry and growth of businesses; (ii) Introducing more competition and modern business practices; and (iii) improving infrastructure with a priority on ensuring an affordable and efficient source of energy. Detailed measures highlighting four different reform tracks are presented in Table 3.8 next. Table 3.8. Matrix of policy actions to improve the business environment Themes Objectives Medium term actions Short term actions Reform Modify the article of the Commercial Track1 Code that provides for minimum Reduce capital requirement for LLC (SARL) to government Simplify the remove completely the remaining bureaucracy creation of Lower the cost of registration to a flat fee minimum capital required. to facilitate SMEs Pursue simplification of procedures private by combining remaining steps sector related to the notice of articles of dynamism incorporations and reduce Make Value Added Tax (VAT) Simplify procedures and reduce delays informality reimbursement filing annual or Improve the associated with complying with fiscal semiannual. tax obligation of the firm- particularly those Remove restrictions on VAT refund administratio associated with the corporate tax, social process n services security and VAT reimbursements Transition to a flat fee with regards procedures. to stamp duty related to contracts. Accelerate Make it mandatory for the delivery municipalities) to make all Adopt and implement building code regulations and required documents of based on best regional practices for construction permits publicly construction permit accessible 53 Themes Objectives Medium term actions Short term actions The Municipality of Niamey should adopt a risk-based approach to process applications for construction permits. Fewer approvals should be needed for simple low-risk projects. Fully implement online operation of Consider unilateral acceptance of automated clearance system SYDONIA internationally-recognized quality WORLD allowing traders and custom certificates such as CE to reduce brokers to enter/track declarations and quality certification delays. allow users to register. Fully transition to the risk management Facilitate system. Facilitate traffic by reducing the trade goods that are sent to the red channel since goods requiring exemptions are sent automatically to the red channel. Introduce legal framework to facilitate the effective implementation of digital signatures Reform Introduce measures to limit corruption in Track 2 the administration through direct Foster responsibility of employees dealing with competition Fight firms and modern corruption in Consider salary increases for key public business the public service positions. practices administratio Implement effective and systematic n enforcement of sanctions / penalties provided for by law in cases of o proven corruption, regardless of the hierarchical rank and the quality of cause. Strengthen corporate governance duties Draft the needed amendments to of directors and management in Societes the Company law provisions in the Anonymes (duty to exercise appropriate Commercial Code in line with the DB Improve recommendations on disclosure and diligence, to make informed decisions Corporate approval of related party and to avoid conflicts of interests). Governance transactions. Introduce procurement rules specific to SME (i.e. quotas on the total public contracts) to enable them to submit individual or joint proposals Implement the current action plan which Develop a calls for a new modern competition law Competition and the establishment of a competition Policy authority. Improve court Narrow the definition of violation of effectiveness/ Introduce mentorship and onboarding “public order� to prevent use of such Enhance programs for new recruits. violation as a delaying tactic. reliance on Train magistrates and develop an ADR Reduce the number of appeals to 2. Arbitration curriculum for law and business schools Update the list of new mediators and and Strengthen the capacity of the staff of conciliators Mediation/sp the mediation center (CNAM) Develop advocacy program to eed advertise/inform services offered 54 Themes Objectives Medium term actions Short term actions commercial through the mediation center conflict (CNAM) resolution. Reform Undertake a review of existing Track 3 dispositions and Remove the main Improve impediments to IPP/PPP in the legal Public Clarify the framework. Private PPP Improve transparency of public Partnership framework procurement contracts related to PPP to enhance transaction service Strengthen the existing PPP unit, inter quality and alia to improve its negotiating skills efficiency. Reform Review and Improve the quality of the Implement regulations facilitating Track 4 regulatory and legal framework payments for SME accessing the Improve governing the sector. power grid. access and Reduce the cost of supply and improve provision of systems reliability through several means power Improve including improvements in procurement reliability and of fuel and power. access to Prepare an interim management contract electricity (for about 2 to 3 years), recognizing management limits of NIGELEC. Strengthen the capacity of the regulatory authority (ARSE) Operationalize the OSS dedicated to SME services. 55 Chapter 4 Alternative Export Diversification Scenarios35 4.1 Introduction: The Pillars of an Exports Diversification Strategy 132. Perhaps the most important reason for Niger to diversify its exports is the need to mitigate its risk of no-diversification, i.e. as demonstrated below, the likelihood of not reaching the desired high growth rates set in its Vision 2035. After summarizing the key ingredients of an export diversification strategy, two complementary simulations exercises allow to compare diversification vs no-diversification scenarios. 133. There is no magic universal recipe for exports diversification, but it is possible to identify a set of common and complementary components. Developing economies have experienced with alternative approaches that provide an integrated basic framework in need of customization. In broad terms, ensuing policies are derived from the past three chapters and could be grouped as the key pillars of the strategy. Somehow, they also correspond to the policies embedded in the ladder of diversification examined in Chapter I. These pillars are next. A. A shared national Vision that provides simple shared goals. These can be formulated in terms of openness ratios, and/or commodity/non-commodity ratios, and/or shares of non-traditional markets, and/or simply in terms of non-traditional exports growth rates. A central agency should lead the coordination efforts required by its design, monitoring and implementation. B. A clear, transparent and predictable business-friendly IC that provides an adequate incentive framework for private sector-led diversification. Its key components would include reviewing: (i) the trade policy to remove any bias against exporting, ensure effective competition in product markets and in key services such as transportation, energy and communications, and achieve regional trade agreements that effectively foster exchanges with key commercial partners, with Nigeria treated as a special case; (ii) the fiscal policy aimed at finding the sources of fiscal space to finance required investments and removing anti-business cumbersome or ineffective tax policies; (ii) the investment code to effectively attract foreign and domestic private investment, badly needed not only for its financing impact but also for its potential for sharing technology and knowledge. C. Effective policies to foster the reallocation of economic resources toward the generation of more productive new activities. Of importance are access to finance and labor-market policies. The former ones facilitate access to resources by domestic private investors. The latter ones determine the match between skilled workers and jobs, and they help move economies away from declining sectors and from informal economic activity. Success comes by overcoming constraints to finance inclusion and mobility, including barriers that limit the entry of women into the workplace and entreprenariat. D. Targeted investments in supporting infrastructure, connectivity and trade logistics to increase agricultural productivity and reduce trade costs. Rising agricultural productivity, reducing trade costs and making trade logistics more efficient were at the heart of the success of Latin American and East Asian countries in integrating into the regional and global economy and achieving more diversified economies. These investments should be accompanied by a thorough review of Ports and Customs transit, and new technologies on export services, such as back-office processing and e-processing. Expansion into these fields not only broadens the base of production, but also diversifies the structure of employment, increases opportunities to find productive work, and boosts participation in education — which, in turn, enhances long-term productivity. E. Government coordinated interventions aiming at the identification of “strategic bets� in terms of export products, accompanied by the effective development of well selected Global Value Chains that 35 Unless otherwise indicated, this Chapter is based upon Prihardini (2017) background paper. 56 target specific market, policy and institutional failures impeding such business development. Alternative approaches are commonly used to identify emerging exports. While regional and global value chains offer new ways for developing countries to export tasks, services and other activities, and a path out of the trap of specialization in traditional mining industries, with all the cost and risk that such a strategy has entailed so far. However, supporting emerging exports require customized and well-coordinated efforts at addressing simultaneously shortcomings preventing emerging products to expand. Most of these shortcomings were identified above, but what matters with GVCs is the need to deal with the integrality of the value chain to succeed. For example, overcoming information deficiencies and asymmetries, such as lack of knowledge of overseas market standards, is likely to be a key factor determining success of expanding exports and reaching new markets. 134. The specifics of some of these policies has already been provided in previous chapters. In fact, Chapters I, II and III already dealt with policies referring to pillars (A), (B), (C). Next chapters V and VI will tackle policies referring to pillar (E). This chapter does some simulations on selected policies tackling pillar D. In doing so, first, it examines how growth (in per-capita terms) can be determined by pro-export diversification factors, when compared to other growth determinants. Such relative importance for Niger is then upgraded under the assumption that Niger would behave as some of successful country exporters. Then, second, the impact of alternative pro-exports diversification policies is compared using a general equilibrium model adapted to Niger’s economy. 4.2 Explaining Niger’s Economic Growth and the Role of Openness36 135. This section examines the determinants of economic growth in Niger during 1990-2015. The analysis applies a regression model developed to explain long-term growth elsewhere.37 The main question is to find to what extent per capita growth can be traced to structural factors (infrastructure, financial intermediation, trade, education, government size, institutions), stabilization policies (inflation, exchange rate), and external conditions (terms of trade, export commodity prices). Infrastructure development is proxied by a composite index constructed as a weighted average of three individual indices capturing progress in phone lines, roads,38 and power generation capacity.39 Human capital development is controlled for using secondary school enrolment.40 As an important variable partly reflecting exports diversification,41 36 This section is based on Haile (2017) background paper. 37 The reference growth regression model is found in Brueckner (2014), which has been previously used to explain long-term economic growth elsewhere (see Araujo et al. (2014), Moller and Wacker (2017), and Haile (2016) for applications in the context of Latin American countries, Ethiopia, and Tanzania, respectively). To shed light on Niger recent years, Bruckner’s (2014) dataset is expanded by one additional five-year period, namely 2010-2015, based on consistent data sources. 38 Note that data on road density and electricity production in Niger were missing for some years. For this reason, information for the latest period for which data were available has been used to measure progress along these dimensions over 1990-2000, 2000-2010, and 2010-2015. However, the main conclusions from this analysis remain reasonably robust to using only a measure of telecom infrastructure for which data are more complete, notwithstanding changes in magnitudes of predicted growth effects. 39 Although Brueckner (2014) uses fixed telephone lines per capita as an indicator for infrastructure, this is a less plausible measure for Niger given that mobile phones were much more widely used in the last decade and that it captures only one aspect of physical infrastructure. In countries with limited (fixed) telephone network like Niger, a variable capturing only telecom infrastructure might be a misleading indicator of overall infrastructure development. As infrastructure is inherently multi- dimensional, transcending several sectors like telecom, transport and energy, we pursue the approach suggested by Calderon et al. (2014) and construct a composite infrastructure index based on three individual indices capturing progress in power generation capacity (as measured by electric production kWh per capita), roads (by road density (km of road per 100 sq. km of land area), and phone lines (by fixed telephone and mobile cellular subscriptions per 100 people). It should be noted that the key results of the study prove robust to changes in the weights attached to these indicators. 40 Secondary school enrolment is commonly used in the growth literature to capture progress in human capital development (e.g. Mankiw et al. (1992); Loayza et al. (2005)). Measures of educational achievements would certainly be preferable; however, data on such variables are very scanty, circumscribing their use in such analysis. 41 Partly as imports growth contributed more than exports to increase this ratio during this period. 57 the trade-to-GDP ratio accounts for openness to international trade, while government consumption (in percent of GDP) serves as a measure of government size.42 Institutional quality is measured by a well-known Polity index. Finally, the analysis includes the share of domestic credit to the private sector in GDP. 136. Growth regressions are made using Niger’s values of the aforementioned determinants for three sub-periods: 1990-2000, 2000-2010, and 2010-2015. To facilitate a better understanding of the considerable volatility in the country’s growth trajectory, four sub-periods are defined: 1980-1990, 1990- 2000, 2000-2010, and 2010-2015. Hereafter, several terms follow: the gap between the average values (of the growth determinants) for 1990-2000 and 1980-1990 as 1990s; the average values for 2000-2010 and 1990-2000 as 2000s; and the average values for 2010-2015 and 2000-2010s. The coefficients of the model perform satisfactorily in terms of tracking the actual growth performance, indicating its relevance in understanding long-run growth dynamics in Niger (see the green shaded area in Figure 4.1). 137. Niger’s disappointing growth performance in the 1990s was mainly due to deterioration in structural factors and less favorable external conditions (Figure 4.1). Structural factors accounted for about -1.2 percentage points (ppts) of the average annual per capita growth of -1.7 percent during 1990-2000. Lower private sector credit and increased government consumption spending were the key structural drivers of growth. Domestic credit to the private sector plunged from 16 percent of GDP in 1980-1990 to 7 percent in 1990-2000. This seems to have been partly caused by an increase in government spending (in percent of GDP), from 12 percent in the 1980s to 15 percent in the 1990s. 43 By contrast, public infrastructure investment and education made a small contribution to growth. 44 This suggests that a significant portion of the current expenditure was directed to counterproductive activities. A lower trade- to-GDP ratio contributed -0.20 percentage points. In addition, a considerable fraction of the growth deceleration in the 1990s can be explained by ‘persistence’ effects – lagged impacts of the economic malaise in the 1980s.45 overall, stabilization policies contributed positively and openness negatively. 138. Interestingly, although the spike in inflation that ensued the 1994 devaluation of the CFA Franc held back growth, correction of the egregious currency misalignment helped improve growth performance. External headwinds reduced growth by -0.30 ppts, reflecting the downward spiral of commodity prices throughout much of the 1990s. 42 Large government consumption spending might reduce growth via crowding-out private investment by causing higher interest rates (where public deficit is debt-financed), distortionary taxation, and bureaucratic inefficiencies, among others. Note, however, that our model considers some of the transmission channels through which the beneficial impacts of government consumption may operate, such as human capital and infrastructure. Given that our focus is on long-run growth, the negative impact of an expansion in government recurrent spending (as a share of GDP) is not necessarily inconsistent with the positive simulative effects that it may have during times of economic downturns. 43 Notice, however, that the large contribution of this variable can be partly attributed to its large estimated impact on growth. 44 IMF (2006) finds that physical capital formation made positive but marginal contribution to growth during the 1990s while government recurrent spending constituted a drag on growth, reflecting that a significant part of it was channeled to counterproductive activities. 45Following the collapse of the world market for uranium in the mid-1980s, Niger’s economy fell into recession. Growth rebounded in the aftermath of the 1994 devaluation of the CFA franc; however, the country was unable to achieve higher sustained growth. 58 Figure 4.1. Determinants of growth per capita in Niger 1990-2000 2000-2010 2010-2015 1990-2015 3.0% 2.5% Average annual GDP growth rate 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% Structural Stabilization External Persistence Residual (unexplained growth) Per capita growth 139. Economic growth in the 2000s was primarily due to structural improvements—including openness- -and external tailwinds. Growth recovery during this period happened on the back of increased (public) infrastructure investment and greater trade openness. The growth contribution of infrastructure development stood at 0.2 ppts, reflecting the fact that higher capital expenditures on infrastructure characterized the 2000s (World Bank, 2005; IMF, 2006). However, other structural factors made only modest contributions. Prudent stabilization policies contributed to growth positively: Inflation fell from an average of 4.2 percent in 1990-2000 to about 2.5 percent in 2000-2010. It should be noted, however, that higher growth was also supported by favorable external conditions and particularly by the demand-driven upsurge in commodity prices—dubbed as the “super cycle� --that started in the early 2000s and lasted more than a decade. Finally, a small portion of the overall predicted growth was due to ‘growth persistence’, indicating lingering effects of the structural weaknesses of the 1990s. 140. Compared to the 1990s and 2000s, during 2010-2015, structural factors continue to play a major role. Specifically, the contribution of private sector credit hovered around 0.90 ppts, contrary to the 1990s and 2000s when lower credit was a drag on growth. Similarly, trade openness and infrastructure contributed by 0.40 ppts and 0.20 ppts. In exchange, the contribution of infrastructure remained marginal, even though its potential for sustaining high growth. Stabilization policies also fostered growth, mainly reflecting persistently low inflation rates; but external headwinds had a negative impact on growth as Niger, like many SSA economies, was affected by the slump in commodity prices that began in the early 2010s. 141. Overall, the bulk of the modest 0.5 percent growth per capita during the whole period 1990-2015 was because structural factors—including openness--and improved stabilization policies. The contribution of structural factors stood at about 0.37 ppts. The three largest contributors were (public) infrastructure investment (0.15 ppts), trade openness (0.14), and education (0.11 ppts).46 The contribution of increased 46These results are somewhat surprising as Niger’s public investment is quite inefficient. The country features an Incremental Capital-Output Ratio (ICOR) close to 5 during the period of 2010-16. The ICOR is the ratio of investment to growth which is equal to 1 divided by the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal 59 private sector credit was slightly lower, at 0.09 ppts. In contrast, increase government consumption reduced growth per capita by about 0.12 ppts. Growth during this period was also due to more prudent stabilization policies, including the exchange rate adjustment, which contributed by 0.24 ppts. This captures the effects of lower inflation rate and a correction of REER misalignment in the 1990s. By contrast, changing external headwinds (notably on global commodity prices) on average held back growth. This reflects slumping prices of Niger’s major export commodities in the 1990s and 2010s, despite their boom in the 2000s. 4.2.1 Simulating the Impact of Trade Reforms 142. Based on past model determinants, it is possible to make a quantitative assessment of the potential impact of trade reforms on economic growth in Niger. Using a benchmarking exercise based on a cross- country regression model developed to explain long-term economic growth elsewhere.47 Specifically, we benchmark Niger against some countries identified as their SSA peers and ‘aspirational’ peers. Scenarios aim closing the gap (differential) in trade openness (as proxied by trade-to-GDP ratio) vis-à-vis a benchmark country (Table 4.1). Niger’s SSA peers are countries featuring similar structural characteristics, notably comparable geography, income level, and development experience. We include two of such countries: Burkina Faso, and Uganda. On the other hand, Niger’s aspirational peers comprise countries with development trajectories that Niger would aspire to emulate: the two Asian economies of Vietnam and Malaysia (Table 4.2). However, to avoid setting unrealistic/unattainable targets, we compare Niger’s values for the period 2012-2016 with the average values for the aspirational peer when they were at Niger’s stage of development. And although policy gaps for the most recent period, namely 2016, would be more relevant, in some cases this exercise cannot exclude capturing some anomalies. Table 4.1. Average values of trade-to-GDP ratio (%) Burkina Cote Niger Mali Uganda Vietnam Malaysia Faso d’Ivoire 2012-2016 1990s 1960s 61.2 54.8 64.3 76.3 51.6 82.9 71.2 Source: Haile 2017. Table 4.2. Potential impact on Niger’s GDP growth per capita (%) Burkina Faso Cote d’Ivoire Uganda Vietnam Malaysia Niger 0.26 1.32 -1.10 1.83 0.89 143. Results indicate that if Niger became as open to international trade as Burkina Faso and Cote d’Ivoire, its growth rate of GDP per capita would increase by 0.26 and 1.32 percentage points (ppts), respectively. The trade-to-GDP ratio of Niger surpass those of East African countries such as Uganda, Tanzania, and Ethiopia. This perhaps reflects a stronger trade integration within West Africa, supported by the monetary union, compared to East Africa. If Niger’s trade ratio were on a par with Vietnam and Malaysia, its GDP growth per capita would increase by roughly 1.8 ppts and 0.9 ppts, respectively. It is important to note that these findings should be interpreted keeping certain caveats in mind. The benchmarking approach throws light on the potential that increased trade openness could deliver and its estimated timeframe, but the exercise is mechanistic and only shows how growth performance would fare if Niger closed the gaps in trade-to-GDP ratio with a benchmark country. efficiency of capital. Hence, the ICOR can be thought of as a measure of the inefficiency with which capital is used. For most developing countries, a benchmark average ICOR is about 3. ICOR estimates available from Halle (2017). 47 This analysis continues using the cross-country growth regression model of Brueckner (2014). See also Araujo et al. (2014), Moller and Wacker (2015), and Haile (2016) for applications in the context of Latin America, Tanzania, and Ethiopia, respectively. 60 4.3 Comparing the Benefits of Alternative Export Diversification Scenarios 144. This section presents alternative diversification scenarios based on simulated shocks. Simulations require a more detailed understanding of the complex structure of Niger’s economy and to do this, the World Bank in cooperation with the Nigerien authorities, constructed a Computable General Equilibrium (CGE) based on a modified version of a 2012 Social Accounting Matrix (SAM) built by the Authorities. Structural reforms have many indirect and complex repercussions on the economic activity of different sectors and on different segments of the population. The CGE model captures the ex-ante impact of simulated reforms on a range of macro indicators, including national accounts (GDP growth, consumption, investments, fiscal balance), external accounts (real exchange rate, trade, debt, current account) and industry indicators (output, employment). It may also be expanded to capture the distributive effects of a policy, as the successful implementation and sustainability of reforms critically depends on the proper management of their distributive effects. Overall, the CGE model can help estimate the economy-wide impact of reforms, while identifying winners and losers, e.g. in terms of sectors (agriculture or others) and factors (wage earner, capitalists) or other characteristics. The Niger CGE model used for this analysis is a single country model version of the World Bank’s global CGE model (LINKAGE)—see Annex AIV.A. 4.3.1 Simulating Economic Diversification: Baseline and Alternative Scenarios 145. A range of scenarios are simulated using the model to assess the economy-wide effects of different government policies and economic shocks. This includes a baseline or business as usual scenario and alternative policy scenarios. Comparing each alternative policy scenario with the baseline scenario gives an indication of the effects of the alternative policy on key macroeconomic and sectoral indicators. The baseline scenario is next (Table 4.3) and results follow below (Tables 4.4 and 4.5 and Figure 4.2). • Baseline scenario: shows the path of the Niger economy with no policy changes (business as usual) • A terms of trade scenario: A permanent ten per cent increase in the world price of Niger’s traditional major commodities, oil and uranium, relative to the baseline. This scenario precludes exports diversification and rather relies on the existing commodity-based exports structure. Any additional government revenue is used to fund government consumption. • A shock on agricultural investment scenario: A permanent ten per cent increase in public investment to support agriculture productivity. The surplus in agricultural production leads to an ensuing increase in agri-based exports. • A shock improving trade facilitation scenario: A 50 per cent improvement in the time it takes to export from Niger fosters Niger’s exports. Baseline Scenario 146. The Baseline scenario is broadly consistent with the Niger economic outlook presented in the World Bank’s Macro Poverty Outlook (MPO), released for the 2017 Spring Meetings . • The economic outlook is expected to be favorable in the short term, supported by public investment and strong recovery in government consumption. • Following from this large boost in public spending, the government is expected to later reduce both recurrent and capital expenditure leading to a future improvement in the overall balance. • The reduction of the fiscal deficit ‘crowds in’ private investment and supports strong investment growth in 2018 and 2019. 61 • No new large-scale mining projects are introduced and existing large-scale mining projects are expected to wind down in 2020, leading to a fall in mining investment from this year onwards. • The completion of the mining projects boosts the productive capacity of the mining industry supporting strong growth in this sector (though our expectations for this growth is more moderate compared with other forecasters). • Without additional investment, over time, we expect growth in agriculture to slow due to land degradation. A Positive Terms of Trade Shock Scenario 147. The no-exports diversification scenario analyses the effects of an improvement in demand conditions for Niger’s traditional exports. Niger’s exports are dominated by the extractives sector: Uranium and oil exports make up nearly 60 per cent of exports. Commodity price projections in the baseline are taken from the World Bank’s commodity price forecasts. In this scenario, a boost in their global demand leads to a ten per cent increase (in level terms) in the world price of uranium and oil, relative to baseline levels. The boost in world prices begins in 2017 and is permanent. Thus, in the baseline oil prices are assumed to be USD 60 per barrel in 2018, whilst in this scenario they are assumed to increase by 10 per cent to USD 66. Similarly, in 2019 the baseline oil price is assumed to be USD 62 per barrel and in this scenario, it is assumed to increase to around USD 68 and so on for the following years. Another important assumption is that the ratio of government recurrent expenditure and capital expenditure to GDP is maintained at baseline levels. That is, the relative size of government in the economy is kept at baseline levels (approximately 30 per cent of real GDP). In practical terms, this implies that growth in government expenditure follows growth in GDP. Implicitly, we assume that the government’s capital expenditure is unproductive. 148. The increase in the terms of trade leads to an exchange rate appreciation and an increase in real household income, which supports a gain in household consumption and savings. Exports from the extractives sector is higher in response to higher world prices. Household consumption is around 1 per cent higher in 2025 than would otherwise be the case. Additional household savings finance a boost in investment which expands the economy’s capital stock and hence its productive capacity. The boost in consumption and investment, as well as the exchange rate appreciation causes a lift in imports. This leakage slows down the economy, and by 2025 real GDP is only 0.2 per cent higher compared to the baseline. Hence, over the medium term, a terms of trade shock has a negligible effect on GDP growth. 149. Why is this? Indeed, the extractive sectors expand, but its overall impact is limited. The boost in world prices benefit the owners of the extractive resource as the rents earned by these resources are now higher. Wages of skilled workers are driven higher by a rising demand arising from two sources: firstly, as the mining sector expands it employs more skilled workers and secondly, skilled workers are complements to capital hence the boost in the capital stock also increases demand for their services. In contrast, unskilled workers are substitutes for capital and their wages fall. In doing so, in a classic case of Dutch disease, the manufacturing sector contracts. Indeed, the exchange rate appreciation makes imports cheaper relative to domestic production. For its part, the government’s fiscal position remains broadly unchanged: While the expansion of the economy leads to an increase in tax revenue, the fiscal space generated is spent on current and low-productive capital expenditures. 62 Table 4.3. Baseline projections of key macroeconomic indicators 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 National Accounts (percent change y-o-y) GDP at constant prices 4.7 5.2 5.5 5.5 4.6 4.5 4.3 4.2 3.9 3.9 Private consumption 3.9 4.8 6.0 5.1 3.8 5.5 4.0 4.5 4.1 4.1 Public consumption -7.9 17.5 2.9 2.8 1.9 1.7 1.5 1.3 0.9 0.8 Investment -4.3 6.9 5.3 8.4 -0.4 0.8 5.9 4.7 4.4 4.5 Public Investment -25.9 17.4 2.4 0.7 4.6 -5.5 4.3 4.2 3.9 3.9 Private Investment 13.4 1.1 6.9 12.5 -3.0 4.3 6.4 4.8 4.5 4.6 Exports 2.8 -2.2 6.6 7.0 7.7 5.7 4.8 4.3 3.9 3.9 Imports -9.9 6.9 5.6 6.9 -1.0 2.5 4.3 4.0 3.6 3.7 Balance of payments (% of GDP) Current Account Balance -16.4 -18.8 -18.7 -19.0 -16.4 -15.5 -15.5 -15.5 -15.5 -15.5 Trade Balance -21.2 -23.3 -23.1 -23.2 -20.6 -19.6 -19.6 -19.5 -19.4 -19.3 Oil Price (USD/barrel) 42.8 55.0 60.0 61.5 61.5 61.5 61.5 61.5 61.5 61.5 Uranium prices (USD/Metric ton) 26.3 25.3 27.0 28.8 29.8 30.6 30.6 30.6 30.6 30.6 Public finance (percent of GDP) Overall balance -6.7 -7.6 -6.3 -4.8 -4.4 -3.8 -3.3 -3.3 -3.2 -3.1 Government revenue including grants 20.0 23.2 23.3 23.6 23.9 22.7 22.8 22.3 22.0 21.6 Total expenditure 26.7 30.7 29.7 28.4 28.3 26.6 26.1 25.6 25.1 24.7 Recurrent expenditure 14.3 17.0 16.4 15.8 15.7 15.2 14.7 14.3 13.9 13.5 Capital expenditure 12.4 13.7 13.3 12.6 12.6 11.4 11.4 11.3 11.2 11.2 Valued Added (percent change y-o-y) Agriculture 8.8 3.6 4.8 4.4 3.4 4.3 3.4 3.5 3.2 3.2 Mining -16.7 1.3 7.0 9.0 6.6 4.9 5.5 4.8 4.4 4.5 Manufacturing 35.2 3.7 6.5 6.9 8.2 5.8 7.0 6.6 6.4 6.3 Services 0.6 9.3 5.3 5.4 3.9 4.0 4.1 4.0 3.6 3.7 Source: World Bank staff estimates. 63 A Positive Shock on Agricultural Productivity Scenario 150. An active exports diversification policy leads the Government to make a productivity-enhancing (targeted) increase in public investment in the agriculture sector. Between 2017 and 2025, there is a 10 per cent increase in the level of public investment relative to baseline, and additional investment is done to raise irrigation on agri-exports oriented areas. As in the baseline the government spends, on average, 12 per cent of GDP each year on capital expenditure; in this scenario, the government increases it to 13 per cent of GDP each year. Out of this additional investment, 70 per cent is funded from foreign sources and the remainder domestically per the shares of domestic and foreign financing of the central government between 2014 and 2016. Following Beyene and Engida (2016), the added investment leads to an average 2 per cent per annum increase in TFP in Agriculture per year. And if it takes one year for the investment return to be realized, by 2025, productivity levels in Agriculture are around 16 per cent higher than in the baseline. 151. The boost in agricultural productivity expands the GDP level above its baseline. Under this scenario real GDP grows by an average of 5.3 per cent per annum, and by 2025 its level is 5.9 per cent higher. The productivity boost increases aggregate household incomes and hence consumption, by 2025 consumption is 9 per cent higher than would otherwise be the case. Government current expenditure is assumed to expand in line with the expansion of GDP. The increase in the public sector crowds out private investment and paradoxically aggregate investment is lower. There is some deterioration in the current account balance as foreign borrowing flow into Niger to finance the increase in public investment, but such crowding out effect is minimized if Niger can attract additional concessional foreign funds to finance private investment, or grants.48 152. Why is this? Higher productivity in the agriculture sector lowers the cost of producing agriculture and this stimulates demand both domestically and internationally. The volume of agriculture exports expands relative to baseline. The agriculture sector becomes a larger share of the Niger economy. While the agriculture sector is the main beneficiary of the productivity boost, the services sector also benefit, but to a lesser extent. The services industry benefits because the additional income from the productivity boost is spent on services and because of the expansion in the government sector. In contrast, the manufacturing and mining industries contract, in the former due to lower investment demand. Income from labor, land and capital rise because of the productivity boost. While wages for all types of labor rise, the wage of rural unskilled workers rise by a relatively smaller amount. For its part, the government’s fiscal position deteriorates between 2017 and 2025, as the fiscal deficit expands by an average of 2 per cent of GDP per year compared with the baseline and averages 6.5 per cent of GDP over the whole period. This means that by 2025 government debt rises by about 14 per cent of GDP. That is, while revenue collection increases in line with the economic expansion, this is not enough to fund the additional public investment on irrigation, which again calls for concessional financing. A Positive Shock on Trade Facilitation Scenario 153. A second diversification policy streamlines trade facilitation. Such scenario shows the benefits of halving the time it takes to export from Niger. Per the World Bank’s DB Report, based on data collected in 2016, it takes approximately 48 hours to complete border compliance procedures and 51 hours to complete documentary compliance procedures. While this is low compared to the average for Sub-Saharan Africa, there is room for improvement. For comparison, in Botswana, the same procedures take 8 hours and 24 hours, respectively. Several studies have estimated the ad-valorem equivalents of trade time costs, including Minor (2013) and Zaki (2014). The applicable estimates for Niger imply that each day to export is 48Alternatively, the Government can contain current expenditure but that would reduce consumption and, by the same token, growth. 64 equivalent to a 1 percentage point ad valorem equivalent cost. That is, each day it takes to complete compliance procedures is equivalent to imposing a 1 per cent tax on exports. Hence, halving the time taken to export from approximately 12 days to six days would lead to a 6 per cent fall in the cost of exporting. This policy is implemented as a reduction in iceberg exporting costs, a standard approach for modelling trade facilitation.49 With lower trade costs, exporters in Niger receive more money for each unit of the exported good (i.e. they no longer must pay the “export tax�). 154. Before proceeding, it is important to notice that the costs of improved trade facilitation vary widely. Reducing regulatory burdens might imply low operational costs, whilst implementing a single window platform has greater financing requirements. In this scenario, two possibilities are considered: an “upper bound� where the costs have not been explicitly modelled; and a second one where government investment increases by the same amount as in the agricultural productivity shock scenario. In the upper bound scenario, government recurrent and capital expenditure are assumed to expand in line with GDP. The fiscal balance remains broadly unchanged between 2017 and 2025 compared with the baseline, with the deficit averaging around 4.5 per cent of GDP. Alternatively, if the level of public investment increases by 10 per cent each year relative to the baseline, such raise causes the fiscal balance to deteriorate relative to baseline, with the deficit averaging around 5.7 per cent of GDP. 155. The macroeconomic effects of the two scenarios are similar. The improved trade access leads to an expansion in the volume of exports and the real exchange rate appreciates. This makes imports cheaper relative to domestic production and import volumes also increase. In other words, some of the additional export income is spent on purchasing imports. Higher incomes from the expansion of trade supports a boost in consumption. The expansion in the government deficit leads to a crowding out of private investment. This crowding out is greater the higher is the cost of implanting trade facilitation. The effects of crowding out is moderated with a higher level of foreign financing for the investment. In the medium term, most sectors benefit from an improved access to markets, either because they are traditional export sectors, such as mining, or new agri-exports; or because they enjoy higher domestic demand because of higher incomes, such as the services sector. The real exchange rate appreciation has however, an adverse effect on the domestic manufacturing industry as imports become relatively cheaper. Summary 156. Without exports diversification, Niger’s economy is expected to grow at an average annual rate of 4.6 per cent, well below its potential rate following active export diversification policies. With population growth at close to 4 per cent per year over the same period, this implies a very small increase in GDP per capita. However, as Niger’s economy is biased towards the agriculture sector, it is unsurprising to realize that policies which help boost the productivity of this sector have a large positive effect on both GDP growth, and more importantly, consumption growth. In particular, investing in irrigation has the potential to increase GDP growth from 4.6 per cent per annum in the baseline to 5.3 per cent per annum. The boost to real consumption is even larger, with average consumption growth increasing by 1 percentage point from 4.6 per cent per annum to 5.7 per cent per annum. Importantly the improvement in agriculture productivity benefits low-skilled rural workers and land owners. Similar, but less pronounced results are obtained from improved trade facilitation policies. Finally, an improvement in Niger’s terms of trade has marginal effects on growth, even though by improving real incomes it also does support higher growth in consumption relative to the baseline. However, only the owners of the natural resource and high-skilled workers would benefit most from such terms of trade improvement. 49Specifically, the equation for the price that domestic producers receive for exporting is adjusted. See van der Mensbrugghe (2005) for the implementation of iceberg trade costs in a CGE model. Samuelson (1954) first presented the notion of iceberg transportation costs. 65 157. Improving trade facilitation has negligible effects on growth, but does support growth in consumption. Niger’s trade patterns mean that policies which improve trade leads to the highest benefit for land owners compared to the other policy options considered. Table 4.4. Results for key macroeconomic indicators – average annual growth rates between 2017 and 2025 (except where indicated) Trade Terms of Trade BAU Agriculture Facilitation - Trade Facilitation upper GDP at constant prices 4.63 4.65 5.29 4.65 4.61 Private consumption 4.65 4.70 5.69 4.85 4.80 Public consumption 3.38 3.41 4.04 3.40 3.37 Investment 4.47 4.53 4.28 4.45 4.70 Public Investment 3.84 3.86 4.94 3.86 4.94 Private Investment 4.60 4.67 3.71 4.56 4.36 Exports 4.61 4.69 5.56 4.99 4.86 Imports 4.04 4.17 4.83 4.56 4.71 Consumption per capita 0.54 0.57 1.18 0.56 0.53 Value added Agriculture 3.76 3.79 5.42 3.85 3.79 Mining 5.32 5.57 4.73 5.36 5.32 Manufacturing 6.38 6.32 5.49 5.82 5.73 Services 4.80 4.74 5.08 4.81 4.80 Wages Labor, rural unskilled (< secondary) -0.55 -0.63 -0.04 -0.26 -0.29 Labor, urban unskilled (< secondary) 0.06 -0.05 0.89 0.36 0.34 Labor, rural skilled 1.89 1.99 3.93 2.26 2.11 Labor, urban skilled 1.85 1.96 3.76 2.21 2.05 Non-labor income Land income 6.79 6.74 7.12 7.22 7.13 Natural resource income 5.55 6.75 4.65 5.90 5.70 Corporate income 4.13 4.03 4.55 4.24 4.27 Fiscal indicators Overall balance (% of GDP) -4.43 -4.42 -6.47 -4.47 -5.70 Efficiency indicators ICOR (for 2025) 5.2 5.2 4.1 5.2 5.4 Productivity -0.29 -0.28 0.51 -0.26 -0.23 Openness ratio (volume) 59.6 60.2 60.7 59.8 60.0 Openness ratio (value) 56.3 56.8 56.9 58.3 58.3 66 Figure 4.2. Macro growth by simulation (%-age point deviation from base-average annual growth rate) Trade Faciliation Trade Facilitation - upper Agriculture Terms of Trade -1.000 -0.500 0.000 0.500 1.000 1.500 Imports Exports Private Investment Public Investment Public consumption Private consumption GDP at constant prices Table 4.5. Macro and sectoral indicators by simulation in 2025 (unless otherwise indicated) Trade BAU- Terms of Trade BAU Agriculture Facilitation 2016 Trade Facilitation - Upper Macro indicators (% of GDP) Private consumption 69.4 69.5 69.6 71.8 70.6 70.5 Public consumption 14.6 13.1 13.1 13.1 13.1 13.1 Investment 33.8 33.3 33.4 30.9 33.2 34.0 Public Investment 12.1 11.3 11.3 11.7 11.3 12.4 Private Investment 22.9 22.8 22.9 20.0 22.7 22.4 Exports 19.9 19.9 20.0 20.4 20.5 20.3 Imports -37.7 35.8 36.1 36.2 37.4 38.0 Current Account Balance -16.4 -15.5 -15.3 -15.6 -16.1 -16.9 Sectoral indicators (% of value added) Agriculture 47.7 44.5 44.6 48.3 45.0 44.9 Mining 7.6 8.1 8.3 7.3 8.2 8.2 Manufacturing 12.0 14.0 13.9 12.2 13.4 13.3 Services 32.7 33.3 33.2 32.2 33.5 33.6 100.0 100.0 100.0 100.0 100.0 100.0 67 Chapter 5 Exploring Niger’s Opportunities for Exports Diversification50 5.1 The Economic Composition and Diversity of Niger’s Exports 158. Between 1995 and 2014, growing mineral exports have lead Niger’s trade composition to become more specialized (concentrated) rather than diversified. Nowadays, Niger’s merchandise export basket is dominated by mining and other primary products (over 80 percent): in the order, Mineral products (64.2 percent), Animal products (8.5 percent), Vegetables (8.1 percent), Textiles (3.1 percent), and Foodstuffs (3 percent) (Figure 5.1). The most notable change of the last two decades is the increasing share of exports in mineral products, which only accounted for 10.9 percent in 1995, compared to 62.4 percent in 2014. Natural uranium, petroleum oil and uranium ore saw a marked increase in their share in total exports of goods respectively from nil to 46 percent, from 9.4 percent to 20.9 percent, and from 6.4 percent to 8.9 percent. This increase is at the expense of all other agriculture-based exports, which saw a significant decline in their share. The biggest decline was observed in the foodstuffs, whose share fell from 20.9 percent to just 2.1 percent; followed by textiles, which fell from 14.3 percent to 2.2 percent. Animal products fell from 8.3 percent to 1.3 percent; vegetables fell from 11.6 percent to 6.9 percent; and cigarettes, and onion and shallots’ shares dropped from 21 percent to just 0.74 percent and from 9.7 percent to 0.54 percent respectively. Conversely, overall exports in services accounted for about 19 percent of Niger’s total exports in 2014, a marginal increase from their 1995 share of 17.5 percent. Figure 5.1. Niger’s export composition Figure a: Exports in 1995 Figure b: Exports in 2014 Source: The Atlas of Economic Complexity. 159. In the same two decades, the change in the composition of goods exports has been accompanied by a change in Niger’s main export destinations. Newcomer uranium is now mainly exported to France, and other extractives to Nigeria, Burkina Faso, the United States (USA), and the UAE. Similarly, palm oil is exported to Asia (China and Malaysia). Emergence of these new exports has shifted Niger’s export destinations from African countries (over 70 percent) to a broader set of destination countries. About 44 50This chapter is a joint World Bank/IFC effort written by Masud Cader, Ephraim Khebede, Jose Lopez-Calix and Kirsten Roster, based on Khebede (2017) and Roster and Cader and Roster (2017) background papers. 68 percent of exports are imported by France, 24 percent remain within Africa, and 15 percent reach Asia (see Figure 5.2). 160. There is also a changing pattern in the composition of exports of services. Services remain a marginal contributor to Niger’s total exports. Annual growth in service exports averaged 7.4 percent between 2010 and 2013, but this rise was dwarfed by the stark increase in product exports. In 2013, services contributed 8 percent to Niger’s export basket. Growth in ICT services between 1995 and 2013 shifted the composition of Niger’s service exports away from government -provided services. Travel and transport also became more prominent (Figure 5.3). Figure 5.2. Niger’s export destinations for main Source: Authors’ estimates. Note: MYS=??; CHN=China; IND=India; VNM=Vietnam; TUR=Turkey; BRA=Brasil; BEN=Benin; NLD=Nederland; ITA=Italy; CIV=Cote d’Ivoire; USA=United States; FRA=France; NGA=Nigeria; ARE=???; BFA=Burkina Fasso. Figure 5.3. Niger’s export composition in 1995 and 2013 Figure a: Services, 1995 Figure b: Services, 2013 Source: Authors’ calculations. 69 161. Overall, Niger is the 10th least exports markets diversified and 18th most product exports concentrated economy in Sub Saharan Africa (SSA) (Figures 5.4 a, b). Per UNCTAD the export diversification and concentration indexes show that Niger remains highly dependent on few export commodities. More Niger’s export product concentration51 has even slightly increased from 0.36 in 1995 to 0.42 (which is three times higher than low-income countries average) in 2014 (Figure 5.4c), indicating that Niger’s exports have become slightly more concentrated today than it was 15 years earlier. However, Niger’s exports market diversification is well above other low-income countries averages. Even by SSA standards (with average index of 0.59), Niger’s index is very high (Figure 5.4d). 162. The high concentration of export products favors a procyclical behavior of Niger’s export earnings, making the country vulnerable to commodity price changes and weather shocks. Examining the relationship between average export concentration and export revenue volatility for the period 1995–2015 (Table 5.1) shows that countries with a higher export concentration ratio have a higher relative standard deviation in export earnings. Low-income countries that have the highest export product concentration and diversification index as a group also have the highest relative standard deviation in export earnings. Such fluctuations, especially in the case of commodities, can be very large with strong macro-fiscal consequences. Niger’s consistently high export concentration index has a corresponding higher relative standard deviation of export earnings (67.3 percent, compared to 60.9 percent for low-income countries and 62.5 percent for SSA). Hence, more diversified exports baskets play in favor of smooth export revenue earnings and reduced macro volatility. Table 5.1. Export concentration indexes and exports revenue volatility, average 1995-2014 Country/Development Export market Export product Standard deviation of export level concentration concentration earnings Mean Median Mean Median Niger 0.79 0.79 0.39 0.39 67.3 Low-income countries 0.63 0.64 0.14 0.14 60.9 Sub-Saharan Africa 0.59 0.59 0.35 0.39 62.5 Developing economies 0.24 0.25 0.12 0.12 60.9 Developed economies 0.15 0.16 0.07 0.07 36.7 Source: UNCTAD and own calculation 163. Growth in non-extractive industries represents opportunities to enhance product diversification and limit shocks from fluctuating commodity prices. Vegetable products increased by an average of 32 percent per annun between 2009 and 2014. In this period, food exports grew by 28 percent annually, and textiles exports rose by 13 percent each year. Each of these sectors presents avenues for diversification. Figure 5.5 highlights relatively high-volume industries that are growing faster than global average rates. These opportunities include agricultural crops such as sesame, rice, and palm oil, and processed goods such as pasta and printed cotton. Animal products have been on the decline. Exports fell from $44 million in 2011 to just $19 million in 2014 – an annual decline of 24% on average. Focusing on those non-extractive products and reducing Niger’s reliance on natural resources can help promote sustainable development (Hausmann, Hwang, and Rodrik, 2007; Plümper and Graff, 2001; and Dalum et al., 1999) as such products are not only vulnerable to external shocks, but inapt to technological progress. 51 The markets diversification index indicates whether the structure of exports markets of a given country or country group differs from the world pattern. An index value closer to 1 indicates greater divergence from the world pattern. The product concentration (Herfindhal-Hirshmann) index shows how exports of individual countries or country groups are concentrated on a few products or otherwise distributed in a more homogeneous manner among a series of products. An index value closer to 1 indicates that a country’s exports are highly concentrated in a few products. 70 Figure 5.4. Niger’s export concentration and diversification indexes Figure a: Export product concentration index, selected Figure b: Export markets diversification index, selected SSA countries, 2014 SSA countries, 2014 Niger Sao Tome and Principe Guinea Guinea-Bissau DRC Equatorial Guinea Sudan Malawi Malawi Seychelles Sao Tome and Principe Nigeria Seychelles Guinea Burkina Faso Sudan Mali Niger Somalia Somalia Congo Chad Gabon Congo Equatorial Guinea Gabon Nigeria Mali Botswana DRC Guinea-Bissau Burkina Faso Chad Angola Angola Botswana 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 Figure c: Export product concentration pattern, 2000- Figure d: Export markets diversification patern, 2000- 2015 2015 1 1 0.5 0.5 0 0 Niger Low-income economies Niger Low-income economies Sub-Saharan Africa Sub-Saharan Africa Source: UNCTAD database and Authors’ calculations. Figure 5.5. Niger’s exports trends 71 5.2 Measuring Niger’s Exports’ Potential 164. The two analyses of the country’s export potential, Economic Fitness and Product Space, are based on the concept of hidden capabilities. Countries’ productive structures are dynamic interactions of countless economic, political, and social indicators. Some of these can be assessed empirically, such as human capital, availability of natural resources, or governance. Others are much more difficult to define even conceptually. Instead of trying to estimate each of the factors that influence competitiveness and productivity, Economic Fitness and Product Space methods use economic output as a proxy for a country’s endowments, i.e. its capability set. If a country can compete globally with other suppliers, then the country has the skills necessary to produce a given product. By understanding which goods a country can produce competitively, we learn how developed its capability stock is without having to measure the level of technological ability and knowledge present in the economy (Tacchella et al, 2012). 165. Both approaches use a threshold to estimate a country’s ability to compete globally known as RCA. The RCA is a concept which measures countries’ relative competitiveness in the export of different goods. The commodity pattern of trade reflects the inter-country differences in relative costs as well as in non- price factors (Balassa, 1986). The advantage of using the RCA index is that it is consistent with changes in an economy’s relative factor endowment and productivity. Using sector-level RCA, it is possible to confirm that in the last two decades Niger has lost competitiveness across all sectors, except for some extractive industries (minerals, stone and glass, wood, and metals) and losses are largest in agro-processing, mainly in animal products and leather (Table 5.2). Table 5.2. Average RCA by sector in 1995 and 2014 Source: Authors’ estimates. 166. Applying the previous competitiveness threshold, the Economic Fitness and Product Space approaches can define country- and product-level metrics for sophistication. Product complexity is defined as the exclusiveness of a product weighted by the fitness of the countries exporting it. In this way, product complexity captures the level of capabilities required to produce a good. A product is complex if only few and advanced countries can produce it. Economic Fitness is a country’s complexity -weighted product diversity. It measures the development of the country’s capabilities stock, by examining the diversity of goods a country can produce and how complex those goods are. A country has high Fitness if it can produce many different goods and some of those goods are exclusive, i.e. only few other countries possess the capabilities needed to be competitive in producing such good. To their estimation, this chapter follows the specifications given by Tacchella et al, 2012. While the interpretation and objectives of the two approaches are similar, the Economic Fitness measure is considered preferable to the Product Space (see below) given its results and mathematical definition. 72 Figure 5.6. Niger’s fitness and wealth trajectory Source: Authors’ calculations. Figure 5.7. Niger’s sector fitness Normalized Sector Fitness Rank 2000 2015 167. Niger’s overall Fitness has remained low over the past 15 years. Niger has wavered – losing Fitness -- and not increasing wealth (measured by GDP per-capita) as quickly as others with similar productive structures. In 2000, Niger had a fitness level comparable to that of Uganda, and even scored above Ethiopia (Figure 5.6). Uganda has since increased both Fitness and wealth; while Ethiopia has increased fitness with some lag in wealth. Niger’s pattern suggests a declining capability stock as well as an increasing difficulty to diversify exports and upgrade to more complex products. This declining capability stock is reflected in 73 Niger’s growth trajectory, which has been characterized by declining Fitness and unstable growth in GDP per capita. Diversification and capability improvements can help promote sustainable growth in the future. 168. Niger’s Sector Fitness shows that the strongest industries in 2014 were animal products (top 50 percent of countries), oil and gas extraction (top 60 percent), and wood products (top 60 percent) (Figure 5.7). Niger’s relatively strong position in these sectors indicates that the country has a well -developed capability stock: It possesses some of the skills and technologies required to be a globally competitive exporter of some goods in these industries. Despite its strong position in the extraction of raw materials, the country lacks capabilities in the processing of these commodities, as is demonstrated below, and declining fitness in mining, metals, and minerals processing. It has also experienced performance declines in agriculture and agro-processing: While in 2000, Niger was in the top 50 percent of crops and food exporters worldwide, its performance has declined since then and it now ranks in the lowest 30 percent of countries in both sectors. 169. The Product Space and Economic Fitness approaches also use measures to determine the feasibility of different diversification and product upgrade options. Both analyses employ another single metric called density, a measure of proximity in the so-called worldwide product space. Density allows to determine the relatedness of a potential new industry to a country’s existing capability stock, i.e. the goods that a country already exports competitively. This measure captures the feasibility for a country of expanding to make a new product or service. The underlying idea is that the process of accumulating productive knowledge is not random, but rather path dependent: those products that a country produces today define what it may be able to develop in the near future. A country can easily develop a new product if it already possesses all or most of the capabilities required for production. If the required technology and skills are not yet present in the country, it will be much more difficult to set up the industry locally. In simple terms, it is easier for a country to move from producing chairs to producing couches than from chairs to cars. 170. The Product Space is a visual network representation of this phenomenon for a country. Product Space proximity determines which products tend to be exported together and are thus interrelated in the productive knowledge they utilize. The resulting relationships between these products are presented visually as nodes connected requiring similar capabilities for production (see Appendix V.1). A country that occupies a well-connected center of the space will be able to utilize its existing capabilities and upgrade more easily than a country whose strengths lie largely in the periphery. Such Product Space network is useful to inform a diversification and upgrading strategy, as it helps determine how much effort it will take for Niger to develop a given industry. If the potential industry locates in a part of the Product Space that is close to goods where Niger is already competitive, then Niger already possesses many of the required capabilities and could easily expand to such new industry. But if the potential industry is far away and not connected to any products that are already established in Niger, i.e. peripherical, then becoming competitive on it will require the acquisition of many new skills and technology. 171. Hence, a country’s position in the product space is determined by th e goods it exports competitively. In extremis, a country that is competitive in all industries occupies the entire Product Space. In practice, a country like Niger that is capable of exporting only a few industries is present in only some areas of the network. Hence, where a country is located in the product space matters, since the number of nearby products determines how many upgrading and diversification close opportunities are available. Examination of the Product Space for Niger in Figure 5.8 and Annex AV.A in Volume II). 172. Niger’s current position in the product space is very sparse, peripheral, and scattered, but it suggests some feasibility of diversification based on crops, animal products and textiles. Radioactive chemicals and mineral products, the country’s largest export sectors by value, have a peripheral location in the product space (top right and center left), meaning that they do little to facilitate diversification into other products. In the bottom right and top right of the product space w e find Niger’s staple exports of 74 onions, oily seeds, sugar, three products are also relatively peripheral (but with RCA>1—see next Section). However, scattered nearby to the left and right top are various processed and non-perishable vegetable products (dried legumes, frozen vegetables, tropical fruits, sugar, and soups and broths) as well few animal products (bovines, sheep, animal fats), which seem better connected to the central nod (and show RCA>1 — see next Section). Another potential opportunity are textiles, which are relatively nearby in the product space, suggesting they can leverage some of the existing capabilities. Finally, in the foodstuffs industry we see emergent exports of pasta, processed tomatoes and vegetable oils, which indicates processing capabilities but offer few linkages to other goods despite their very peripheral position. Figure 5.8. Niger’s product space, 2014 Refined Machines petroleum Food stuffs Radioactive chemicals Animal Textiles products Minerals Unglazed Other ceramic minerals Vegetables Hides & Vegetables and fruits Textiles skins and fruits family Source: Observatory Economic Complexity 5.3 Identifying Possible Export Diversification Products 173. Past approaches, based on sector-level measures, do not allow to single out specific exports products, and further disaggregation is required, which is the purpose of the present section. To do this, this section combines benchmark measures of product-complexity, product space density (feasibility), growth export rates (compound annual rates—CAGR--for last 5 years), and competitiveness (RCAs) to identify possible avenues for product and services diversification (Annex AV.B,C have technical details). 174. Whereas measures for density and CAGR are straightforward, two preliminary steps require sector- estimates of product complexity and product-specific RCAs. Annex AV.C explains how to estimate density and Annex AV.E serves as a benchmark to identify goods that can upgrade Niger’s capabilities in given sector, by helping identify industries that are more complex than the average of Niger’s current competitive exports in that sector. The Annex AV.E gives the complexity of Niger’s current compe titive exports (right column) compared to the average complexity of all goods in that sector (left column), i.e. the complexity that Niger could have if it was competitive in all goods in that sector. The guiding criteria would aim to upgrade Niger’s capabilities in each sector if the export products chosen are more complex than Niger’s current average in that sector. Such benchmarking allows to choose industries that are attractive given their potential. For example, on average, Niger’s vegetable products have an average complexity of 0.3; while its vegetable exports have an average complexity of 0.1. This means that Niger has potential to build 75 further competitiveness in this sector, but developing more sophisticated vegetable products, i.e. whose complexity is on or above 0.1. 175. Similarly, product-specific RCAs are estimated to assess their competitiveness. Broadly, in 2014, Niger exported over 800 commodities (with values ranging from $1,000 to $550 million). Among them, Niger has relative comparative advantage in 69 of these export commodities (Annex AV.F). This means that Niger’s share of world exports in these 69 commodities is larger than what would be expected from the size of its export economy and from the size of a product’s world market. Not surpris ingly, at present, Niger’s highest comparative advantages are in the extractive sector, especially uranium ores, concentrates, and compounds. But aiming at diversification, the list identifies other highly competitive potential exports in vegetable crops and animal, leather and manufactured--food and textiles--products and services. Grouped results for all competitive products (with binary RCA>1) are presented in Table 5.3; with those in bold indicating relatively higher compliance with most criteria applied. • Animal products and Leather. In line with the trend of the overall animal product sector, exports of live animals have declined very quickly over the past five years. Live cows, Niger’s largest animal export declined an average of 32 percent annually between 2009 and 2014, which is 36 percentage points lower than the global average growth rate for this industry. Given the low potential for capability upgrade (complexity close, but below Niger’s benchmark of 0.1) and low connectivity (0.04) potential to new industries (peripheral location in the product space), attempts to revive the live animal products industry will likely not help Niger’s long-term diversification and capability upgrade. Even shifting the live animal industry from bovine animals to horses would be challenging: While the high complexity value of horses suggests good potential to develop Niger’s capabilities, export volumes have also declined in this industry (though at a slower rate), and feasibility is lower than in other potential animal products. Yet, three caveats would apply: (i) export data might not account for unofficial trade smuggled to Nigeria, thus underreporting what could be a rather dynamic activity; (ii) if political and social considerations offer compelling reasons to rebuild Niger’s strength in the bovine industry, export of breeding-class animals or bovine leather offer some potential due to growing export volumes and related requisite capabilities; and finally (iii) Niger can expand the emerging dairy industry, where growing exports already exceeded $2 million in 2014 and complexity (0.13) is above Niger’s benchmark. • Food products. The product space analysis above has already indicated that Niger’s competitive food exports offer few immediate diversification opportunities given their peripheral position. Yet dynamic growth in export volumes suggests food products’ potential. The largest export is cane sugar, which has grown faster than global rates recently. Expanding it can help increase the share of food in Niger’s exports relative to the extractive sector, yet it will contribute little to capability upgrade as the complexity of sugar is below Niger’s benchmark for food products (0.1). Instead, Niger can focus on the growing pasta industry, with relative complexity high and the country is already a competitive exporter. • Agricultural Crops. The agricultural sector is already relatively established, with export volumes of multiple industries exceeding $10 million in 2014. Traditional industries such as sesame, rice, and dates offer very feasible expansion opportunities given Niger’s existing capability stock and their fast growth in recent years. Other traditional industries with significant export volumes have seen slight declines since 2011, specifically onions and dates; but remain competitive and their feasibility for expansion is still relatively high, meaning these industries can be reinvigorated. Niger also has opportunities to increase its products sophistication, by focusing on vegetable and animal oils, including palm oil, industries that are relatively complex, feasible, and dynamic. 76 • Textiles. This is a well-connected component of the product space. Capabilities in textiles offer easy “jumps� to new textile products, though the sector is relatively isolated from other industries. Niger has opportunity to develop its woven fabrics industry, which could open new textile products. • Services. Niger’s ICT industry has made remarkable strides both in its share of Niger’s service exports and in its revealed comparative advantage (Table 5.4). The industry has grown faster than the global average and presents an opportunity to expand Niger’s service sector, which is still small compared to product exports (Services contributed to 8 percent of total exports in 2013). Looking beyond ICT, charged financial services would offer much more potential for capability upgrade, given their high complexity, but with export volumes declining rapidly, it will be challenging for Niger to become competitive in this industry. Finally, Niger can benefit from expansion of its travel and transport services. While these industries are of low complexity, rapid transport development is crucial to support diversification in the agriculture and manufacturing sectors highlighted above. Table 5.3. Niger: Potential products for export diversification seen under different criteria Export Attractiveness Feasibility 5Y RCA Description (Code) Value (Complexity) (Density) CAGR 2014 2014 Live bovine animals other than pure-bred breeding $7,386,061 0.07 0.04 -32% 6.4 animals (10290) Milk & cream, concentrated (excl. in powder), $2,573,734 0.13 0.04 331% 10.5 unsweetened (40291) Live goats (10420) $2,206,880 0.03 0.06 -30% 72.5 Live horses/asses/mules/hinnies other than pure- $1,763,749 0.26 0.03 -10% 11.9 bred breeding animals (10190) Live sheep (10410) $1,574,292 0.03 0.05 -51% 10.5 Other live animals (10600) $1,395,134 0.01 0.05 -35% 7.8 Live bovine animals: pure-bred breeding animals $526,823 0.14 0.04 30% 2.7 (10210) Raw hides & skins of bovine or equine animals $1,461,021 0.02 0.04 159% (410100) Cane/beet sugar & chemically pure sucrose, in solid $9,980,498 0.02 0.05 26% 5.6 form, not containing added flavoring/coloring matter (170199) Pasta, excl. of 1902.11-1902.20, (190230) $5,386,245 0.13 0.04 100% 15.7 Uncooked pasta, not stuffed/other prepared, not $2,234,948 0.12 0.05 90% 3.7 containing eggs, (190219) Tomatoes, prepared/preserved other than by $1,011,621 0.06 0.05 42% 2.2 vinegar/acetic acid, other than whole/in pieces (200290) Sesame seeds, whether/not broken (120740) $37,668,71 0.01 0.08 231% 78.7 3 Semi-milled/wholly milled rice, whether/not $16,423,39 0.03 0.06 129% 5.8 polished/glazed (100630) 4 Vegetable fats & oils & fractions thereof, $10,540,29 0.08 0.05 217% 22.1 partly/wholly hydrogenated/inter-esterified/re- 0 esterified whether/not refined but not further prepared (151620) 77 Export Attractiveness Feasibility 5Y RCA Description (Code) Value (Complexity) (Density) CAGR 2014 2014 Palm oil, other than crude, & fractions thereof, $9,730,118 0.11 0.07 49% 2.9 whether/not refined but not chemically modified (151190) Husked brown rice (100620) $6,895,228 0.08 0.05 15% 27.8 Onions & shallots, fresh/chilled (70310) $6,430,544 0.05 0.06 -9% 15.5 Kidney beans, incl. white pea beans (Phaseolus $2,818,687 0.02 0.06 23% 9.7 vulgaris), dried, shelled, whether/not skinned/split (71333) Dates, fresh/dried (80410) $1,746,350 0.00 0.06 48% 11.2 Animal/vegetable fats & oils & their fractions, $887,621 0.41 0.04 / 2.6 processed (151800) Green Tea (not fermented), whether/not flavored, in $776,572 0.11 0.05 170% 6.1 immediate packing of a content not >3kg (90210) Woven fabrics of cotton, containing 85%/more by $15,876,11 0.07 0.05 24% 48.3 weight of cotton, printed, plain weave, weighing 7 >100g/m2 (520852) Source: Author’s calculations based on BACI data. Note: HS-6 code enclosed in parenthesis. All products have binary RCA=1. Table 5.4. Niger: Potential services for export diversification seen under different criteria Export Value Attractiveness Feasibility Description 5Y CAGR RCA 2013 (Complexity) (Density) Telecommunications, computer, $63,885,511 0.02 0.03 33% 5.6 and information services (ICT) Travel, Business $56,473,156 <0.01 0.04 3% 1.3 Other financial services $3,068,577 0.23 0.02 -16% 0.1 (charged) Transport, Other $2,716,379 0.01 0.03 33% 0.4 Transport, Freight $2,014,007 <0.01 0.03 -15% 0.4 Source: Authors’ estimates. Note: RCA=1 except for financial serv. and transport (freight and other) with RCA=0002E. 176. These findings should acknowledge that uranium and petroleum still make up most Niger’s exports, making diversification into non-extractive industries increasingly important for steady economic growth. While most opportunities to achieve this can be found in the sectors highlighted above, by-products of Niger’s large extractive exports can offer some opportunity to diversify within the commodities sector. For example, while petroleum is of very low complexity and has declined in volume between 2009 and 2014, residues from petroleum oils have emerged very recently and require more exclusive capabilities for production. Similarly, some sophisticated industries have also emerged. For example, Niger is exporting a small quantity of awnings, tents, and sails, which have proximity to various textile and rubber products. Another promising new sector is metal products which Niger has started to export at a rather small capacity. Currently, Niger is exporting iron ingots, scarp iron and iron pipes which collectively amount to less than $150k. With such small volumes, the industry is still very young, but in the future, building strength in metal products can help Niger develop much more sophisticated industries which are nearby in the product space, such as machinery parts. 78 5.4 Opportunities for Export Diversification 177. Under any option, the government should not forcefully pick all priority sectors on its own and try to outsmart the market. Instead, while a careful selection is advisable, this approach emphasizes the importance of first learning about cross-sector specific barriers and providing the necessary sector specific public inputs to allow firms to move on their own to identified new activities, while operating existing activities more productively. In practice, the provision of the missing public inputs requires a government that can identify as many obstacles and opportunities as possible and can make informed choices. The success of such “strategic bets� will critically hinge upon the quality and depth of public–private dialogue. And once government identifies the categories of products that need to be the target of its medium- and longer-term perspective plans, appropriate policies may be devised to facilitate private investment. 178. Niger’s Agency for Export Promotion (ANIPEX) has already produced a report that examines Niger’s export potential (ANIPEX 2016). The report provides ample information on the potential production capacity and key constraints to export growth in selected products. According to it, Niger has high export potential in a few following products (Table 5.5). While the ANIPEX report rightly highlights Niger’s export potential in the afore mentioned products, findings from past section show that Niger has greater potential in a more diversified set of products. Based on those findings, it is possible to formulate a short- and medium--term export diversification strategies for Niger. This section discusses their feasibility and transformative potential, as well as their alignment with current government priorities. The strategies are based on lessons learned worldwide—Malaysia, Thailand, Kenya and Uganda--summarized in Annex AV.G in Volume II. Table 5.5. ANIPEX selected products for export promotion Sector ANIPEX recommendations Agriculture Cowpea, Onion, Sesame seeds, Souchet, Gum Arabic Pastoral products Livestock/ meat, Hides and skins, handicrafts 5.4.1 Short-term Strategy: Fostering Existing Productive and Export Capabilities 179. The short-term overall strategy should focus on the products that Niger already has the productive knowledge and relative comparative advantage. While some of these exports are raw products (like onion and sesame seeds), other manufactured products (like textiles and foodstuffs) on the lower end of the complexity spectrum are feasible given Niger’s capability stock. These are within Niger’s current reach and fostering these products will increase manufacturing skills that are a pre-requisite for accelerated diversification into more sophisticated products. This strategy is rather easy to implement but will lay the foundation for acquiring more sophisticated technical skills necessary for large scale manufacturing. Labor- intensive light manufacturing led the economic transformation of many of the most successful developing countries. Details on products are in Box 5.1. 79 Box 5.1. A short-term export diversification strategy Key types of product focus: • In the light manufacturing industries, woven textiles and leather products present opportunities for Niger. Country-specific advantages in light manufacturing include: (i) low labor cost, and (ii) abundance of natural resources that supply raw materials such as skins and hides, and cotton for the leather and garment industries. • Strengthening the agro-processing industries. Niger’s agro-processing industries include cereals (including pasta, infant foods of cereals, etc.), dairy products (milk and cream), processed tomato, sugar. Vegetable and animal oils (including palm oil) have relatively high levels of sophistication and strengthening these industries could be instrumental to diversifying the economy. Niger’s potential for agribusiness lies in low wages, and opportunities to increase yields on cultivated land. Currently, the processed food industry is still young and growing. • Compete on the quality of existing agricultural and livestock exports. Sesame seeds, rice, and dates, offer feasible expansion opportunities given their fast growth and proximity to Niger’s capability stock. Enhancing the productivity and quality of these products will lay the foundation for more sophisticated diversification in the medium term. Furthermore, to succeed internationally, it is important to effectively identify and exploit a wider range of market opportunities. Livestock exports have declined rapidly and reviving the industry offers little opportunity for capability upgrade. However, high quality breeding-class animals can help diversify exports in Niger’s important livestock sector while the economy prepares to upgrade to more complex exports. • Regarding services, the travel and ICT sectors have shown some progress, but they need to be strengthened to continue the momentum and be globally competitive. The most prevalent challenges for Niger to move forward are poor infrastructure, energy constraints, security and the ICT skills gap. Therefore, Niger can capitalize on the current momentum and lay the foundation to strengthen these sectors by addressing these key constraints. It is essential to establish good telecommunication infrastructure, with market based pricing, private sector participation and appropriate regulation. This will also facilitate opportunities for other service sectors, particularly financial and professional services. 5.4.2 Medium-term Strategy: Expanding New Higher-value Added Export Opportunities 180. In parallel, Niger should step up its diversification efforts by targeting selected industries that can help raise the country’s Economic Fitness (Box 5.2). While the emergence of some manufactured products like pasta, unglazed ceramics, and metal products is encouraging, Niger should encourage the upgrading and expansion of small scale industries. Light manufacturing in Niger is characterized by a few small-size formal firms providing products to niche or protected markets and by a vast number of small, low- productivity informal firms providing low-quality products to the domestic market. These enterprises provide low-paying jobs, little in foreign exchange earnings, and few productive employment opportunities for young Nigerians. Accelerating Niger’s economic transformation will require expanding these firms’ productive knowledge beyond existing productive capabilities (World Bank 2017). This means that in addition to strengthening the existing product lines, Niger needs to find and develop a few new strategic products, based on its current productive knowledge, and export them competitively. Being selective is a must as diversifying into more sophisticated product lines is time-costly and requires highly skilled labor force, significant investments in infrastructure etc. Our analysis has highlighted potential avenues that are within reach, but can also help raise the complexity of Niger’s exports. 80 Box 5.2. A medium-term export diversification strategy Overall strategy: The most critical challenge for Niger’s medium term diversification is acquiring a sufficiently large pool of local industrial skills/capabilities, which cannot be imported or developed in a short period. The proposed short term strategy would however generate a selected pool of industrial skills/capabilities that are an essential foundation to produce more complex manufacturing skills necessary to produce more sophisticated manufactured exports. Key types of strategic product focus to explore: • Textiles. Niger’s textile sector currently generates only US$22 million in exports with few job opportunities. Given the availability of the productive knowledge and skills required to manufacture garments (such as, woven fabrics), there is palpable potential for domestic firms to increase their share in the domestic and global clothing markets. A significant labor cost advantage,52 offer Niger the opportunity to expand its textile and apparel industry. Foreign direct investment can accelerate the process of ramping up production and exports. Niger’s potential for expanding its production of high - quality cotton enhances the potential benefits associated with expanded production of high complexity fabrics. However, attention will need to be given to the potential constraints on Niger’s competitiveness in the textile industry, such as poor trade logistics, which would wipe out its labor cost advantage and cut it off from the higher-value, time-sensitive segments of the market. Establishing a green channel for apparel at customs, providing free and immediate access to foreign exchange, reducing the cost of letters of credit, and setting up an industrial zone close to the Cotonou (Benin) port would help resolve the some of the trade logistics issues. Facilitating access to low-cost electricity would also remove some constraints to the sector. It is highly re commended that the government should address this problem as its long-term objective. • Animal products. In the long run, Niger must consider addressing declining export volumes in the livestock sector. The industry can either be revived by addressing key constraints or Niger can focus entirely on upgrading to more complex animal products such as leather and dairy. Facilitating access to rural land for good practice animal farms will open the door to large-scale commercial herding enterprises. Promoting better breeds, controlling cattle diseases, and enabling the use of cattle as collateral would expand the capacity of small-scale operators to contribute to a larger supply of quality hides. And improving trade logistics along the same lines as textiles would further enhance competitiveness. Alternatively, Niger can focus on different sectors, but without appropriate policies the animal sector is likely to continue declining. • Agribusiness: ▪ Niger already exports agriculture products (mainly vegetables worth of $81 million, and foodstuffs worth of 30.9 million in 2014). The competitiveness potential for agribusiness lies in low wages, suitable soil condition for grains, fruits and vegetables, and opportunities to increase yields on cultivated land. The inability to produce and process agro-industrial commodities has thus far limited the scope for industrialization, as opportunities to add value and create jobs have not been adequately exploited. Niger must stimulate its agro-industry first by increasing agricultural productivity as well as by minimizing post-harvest losses resulting from inadequate storage, packaging and transport facilities. ▪ Niger has large dairy cattle population, and livestock rearing is practiced by more than 85 percent of the active population as their main activity or as secondary activity after agriculture. Currently, Niger is exporting concentrated milk and cream. Therefore, by expanding its current productive knowledge, it has the potential to manufacture other products like butter, cheese and yogurt. ▪ To unleash the vast potential of agribusiness, the government should (i) facilitate private sector investments in key input markets, such as fertilizers and hybrid seeds; (ii) pilot in key locations the use of land and cattle as collateral; and (iii) facilitate access to rural land for good-practice investors. • Metal products. Niger has the natural resources to develop a competitive supply of metal, but its current supply is unreliable, unsustainable, and poorly organized. Currently, Niger exports small number of metal products. The sector is dominated by smaller firms with no large or exporting firms. The potential lies not in exports (at least initially) but in the growing domestic market. • Services sector: Expanding the ICT sector requires a suitable competition framework as well as provision of skilled labor force. The provision of customized education and skills training with more attention to vocational and technical education will be vital for the long-term success of the ICT sector. Niger can benefit from expansion of its travel and transport services. While these industries are of low complexity, transport infrastructure development will be crucial to support diversification in the agriculture and manufacturing sectors highlighted above. Finally, Niger can consider expanding more complex service sectors, such as financial services. This industry is still very small, but offers immense potential for capability upgrade and diversification. 52Per a study on selected African countries, wage levels remain the most important cost element for Africa’s competitiveness (DB, 2016). 81 Chapter 6 Upgrading Niger’s Global Value Chains in Bovine and Onions53 6.1 Introduction 181. In the GVC taxonomy, Niger is considered as an “agricultural seller� (Tag lioni and Winkler, 2016). Agricultural sellers are predominantly specialized in agricultural production. Mostly their production is upstream and they have little foreign value-added content in their own products. Low income countries, including most SSA, are considered agricultural sellers. Their typical characteristics are: (i) they are strongly integrated into perishables GVCs on the selling side, as this is their obvious market opportunity; (ii) have a negative trade gap (import minus export), unless related manufacturing exports develop; (iii) their majority has moved toward manufacturing through agricultural upgrading (see below), even though a minority has become more concentrated agricultural sellers; and (iv) their typical upgrading trajectory is to become some type of manufacturing buyers and/or diversified sellers with a stronger service sector (Taglioni, 2017). 182. As an agricultural seller, strengthening Niger’s participation in global value chains requires densification and economic upgrading to higher value added activities . “Densification� is about engaging more local actors (firms and workers) in its agricultural GVC network. This contributes to the overall goal of increasing a country’s value added as it creates spillovers across sectors and resilience to external shocks (likely to increase with greater export orientation, other things equal). In fact, this could even mean that performing lower value-added activities in on a large scale can generate large value-addition for the country. In turn, “economic upgrading� is about gaining competitiveness in higher value -added products, tasks and sectors. Three types of economic upgrading exist: (i) moving into more sophisticated products; (ii) increasing value-added shares in existing GVC tasks with technology; and (iii) moving into new value chains with higher value added shares. Thus, Niger’s policy makers and private investors need to decide which type of economic upgrading (products, functional, intersectoral) they want to pursue. A detailed menu of options is included in Table 6.3 below. 183. Niger has two main reasons to expand the livestock and onion sectors. First, it is the ranked sixth among poorest countries in the world with high food insecurity. Second, both the livestock and onion sectors are its most important agricultural exports. The government is evaluating ways to upgrade and add value to these agro commodities, increase and diversify exports and attract investments that can trigger agricultural growth and improve incomes. 184. Development potential in RVCs and GVCs. In 2011, Niger’s livestock headcount was estimated to be about 10 million cattle, 10 million sheep, 13 million goats, 2 million camels, 306,878 horses and 2 million donkeys (Rieländer 2014, AFDB et al. 2016). The country’s bovine exports are live animals facing many challenges including decrease in exports, meat quality problems, high informality, and increasing regional import barriers. The bovine dairy herd that once produced 107 liters of milk per person annually in 1968, now only supplies around 45 liters causing the country to increase imports to meet growing domestic demand. The Violet de Galmi onion, is the leading onion variety in Niger that is popular in the region suffers from regional competition, reduced exports and losses of about 30 percent due to quality, storage, packaging, and transport problems. Niger’s onion competes with regional markets such as Senegal which shifted from importing onion to being a producer and exporter of onions to the region and Europe. 185. This chapter examines the current state of the livestock and onion industries, regional trade dynamics and determine possible RVC and GVCs upgrading trajectories. Field work was undertaken in Niger in 2017. The chapter is divided into five remaining sections. The second and third present the global bovine and onion value chains; the fourth covers the case of Niger bovine and onion value chains; the fifth presents the comparative country cases; and the sixth includes the policy recommendations. Details on the 53 This chapter is based on Ahmed and Bonaventure (2017) background paper to this study. 82 methodology and the characteristics of global value chains in agriculture are found in the background paper (Ahmed and Bonaventure, 2017). 6.2 The Global Bovine Value Chain 186. Global value chains function differently from traditional markets. GVCs are defined by strategic linkages between firms or actors along the chain – from inputs to the final consumer (Ahmed, Hamrick et al. 2013). They are synchronized and directed by lead firms that identify objectives and set standards for their upstream suppliers. European supermarkets implement private standards (largely more stringent than EU trade standards), which often act as a barrier to smaller African producers. The implications for producers and workers of access to (or exclusion from) value chains is analyzed through the concepts of upgrading and downgrading. Economic upgrading is defined as moving to higher-value activities in value chains, and social upgrading as improved employment, pay and rights of workers (Barrientos, Gary Gereffi et al. 2010). 187. The global livestock market is highly dynamic. Livestock occupies about 30- 45 per cent of the land and is worth over $1.4 trillion in assets (Steinfeld, Gerber et al. 2006). There are over one billion people who depend on livestock for their livelihoods and food security with over 600 million smallholders who highly depend on the sector in developing countries (PK, Jones et al. 2006, FAO 2011). FAO estimates that the livestock sector is one of the fastest growing in developing countries with an increase of about 5 percent and 4 percent since the 1970s in the meat and dairy segments (FAO 2011, FAO 2013). Factors such as population growth, urbanization, shifts in consumer demand and rising incomes drive this growth. At the same time, demand is slowing in many developed economies. Producers in these countries are able to achieve high efficiencies while having to adjust to more stringent environmental, health and sanitary standards (Thornton 2010). Elements such as competition for natural resources and between food and feed, environmental and standards are some of the challenges that producers in the chain are facing. 188. The mapping of the bovine value chain has four main segments: inputs, production, processing and marketing (Figure 6.1). Rising per capita meat consumption globally and in Africa encouraged producers to expand their herds. This in turn generates demand in the services sector such as animal vaccinations. Buyers in the chain are the processors, distributors, wholesalers and retailers which are usually large business. Suppliers in the chain are input producers such as feed manufacturers, land owners, energy and service providers (MarketLine 2017). • Animal feed is one of the primary inputs that is costly and is impacted by volatility in global agricultural commodity markets. High feed prices and low access to credit constrain farmers’ spending on livestock services. Access to credit, animal health, traceability and market information are key to farmer upgrading. Many livestock farmers conduct their livestock services in-house instead of using external operators. Globally, farmers adopt new technologies and practices to maximize the return on their herds and increase their market share. • Producers in the chain are ranchers and farmers who raise cattle. Their operations are divided into calving, pasture, grain, organic, and dairy operations. Cows that are raised for meat and dairy production go to feedlots where they receive special diets to raise their weight and produce specific meat and milk grades. Cattle in the production segment of the chain move to subsequent phases via traders, auctions, finishing lots, and processors. The ability to add value in this segment is limited and can be achieved by raising cattle for niche markets such as organic, low-fat and halal products. • In the Processing and marketing segments, beef processors slaughter cattle, process their carcasses and prepare meat for sale to other food manufacturers, supermarkets and meat wholesalers and retail 83 traders. Global processors are consolidating and vertically integrating into feed, production and processing. Figure 6.1. The global bovine value chain map Source: Ahmed and Bonaventure (2017). 189. Global meat trade has been steadily growing since the mid-1990s. Main products are meat cuts and edible offal and trading in live animals and carcasses is significantly less (Speir, Cabrera et al. 2010). Beef trade is concentrated among a select number of countries that are mostly developed such as Australia and the United States and some emerging such as Brazil. Only a handful of developing countries can successfully compete in these higher value markets. In 2015, global bovine exports reached over USD 8 billion with Europe as the largest exporting region followed by North America. Africa’s exports were only 3.2 percent of global bovine trade. In the live Bovine markets, France has been the leading exporter since 2007, followed by Canada, Australia, Mexico and Brazil. Bovine exports from Africa reached about USD 270 million with Ethiopia by far the largest exporter in the region, followed by Somalia and South Africa (Figure 6.2). The US, Netherlands, Australia, Ireland and Germany are the largest exporters in fresh chilled meat segments. India, Brazil, Australia, the US and New Zealand are major exporters of frozen bovines. Figure 6.2. Top bovine exports in Africa in 2015 Bovine Exports from Africa in 2015 -- TOTAL USD270 $200.0 $173.0 Bovine Export Values in $150.0 $100.0 $48.4 $50.0 $17.4 $7.2 $6.6 $5.3 $3.9 $3.7 $4.5 2015 $0.0 Ethiopia Somalia South Tanzania Rawanda Burkina Niger Kenya Other Africa Faso Exporting Countries Source: Spencer Henson and Humphry (2010). 84 190. Europe and Asia are the first and second largest importing regions with about one-third of the bovine market each in 2015. Africa is a distant (6.1 percent) fourth largest importing region. The United States is the largest live bovine importer and is the largest exporter of fresh and chilled meat. Egypt is the largest importer of bovines in Africa with about USD 109 million in 2015 mostly from Europe, South America and Australia (Figure 6.3) Somalia is also the second largest importer and exporter of bovines in Africa with most of its live animals going to Oman. North African countries are highly dependent on European imports to meet their local consumption needs. China is now the largest importer of frozen meats along with Vietnam, Hong Kong, Korea and Egypt are the largest importers of frozen meat after the United States. Figure 6.3. Top bovine importers in Africa in 2015 Bovine Imports in Africa in 2015 at USD 511M $120 $109 $107 $96 Bovine Import Values $100 $80 $80 $60 $40 $31 $19 $13 $20 $20 $10 $7 $7 $7 $5 $0 Bovine Importing Countries Source: Spencer Henson and Humphry (2010). 191. The global bovine industry is concentrated with lead international firms in animal genetics, feed, production and processing segments of the chain, but its governance is complicated. Small farming operations are fragmented and farms are increasingly consolidating. Vertical integration in the chain is growing to manage risk, expand reach and secure their supply to meet growing demand in emerging and developing economies. However, governance in the bovine value chain is complicated. The chain is buyer driven where actors gain power based on the characteristics of the herd, size and type of processing, control over key inputs such as feed and logistics, economies of scale and market access. Generally large multinaitonal firms drive demand in the processing and marketing segments of the chain. These firms develop relations with producers via contracts such as forward contracting and contract farming. Processors are able to meet complex and codifiable transactions that are a component of their relations with the marketing segment of the chain. Vertical integration of lead firms in grain markets, processing and marketing provides them with considerable leverage and market power. Transactions in the chain are regulated by contracts and standards. Meeting these public and private standards enables producers to access markets and have stronger linkages with processors. • Public standards govern the chain to ensure that food meets health and sanitation requirements. These include vaccination requirements, feed standards and animal health certificates. Health and environmental regulation are designed to safeguard from animal diseases like bovine spongiform encephalitis (BSE) and foot-and-mouth disease (FMD) whose occurrence led to trade bans. Public certications and tracability of meat is constantly evolving to manage animal diseases, meet shifts in demand and ensure the accuracy of labelling such as certified organic and hormone free (Thornton 2010). • Private standards in the bovine GVC influence value-added beef and is the fastest growing industry for specialty beef production. In addition to standards such as ISO and HAACP, certifications such as 85 natural, organic, antibiotic-free, hormone-free, and grass-fed beef are growing with the increase of health focused retailers. Meeting ethnic and religious requirements is also a fast-growing market that gave rise to new labelling such as Halal certifications. These standards create captive relations between producers, feedlots and processors as their production becomes specific to meeting certification requirements (Leake 2014). 192. The bovine GVC is shifting in response to strong demand in Asia and Africa and supply challenges such as trade relations, market and weather volatility and currency fluctuations. Mature markets in developed economies are driving consolidation and vertical integration which is making producers and processors turn to growing demand markets in Asia and Africa. Substantial growth in production is projected to come from South America. 6.3 The Global Onion Value Chain 193. Onion is a rising vegetable crop that grows in over 170 countries on about 9.2 million acres in the world. Bulb onions are available throughout the year in many countries. Onion prices vary annually based on global supply and demand dynamics. Almost 65 percent of onions come from the leading eight producers which are: China, India, the United States, Iran, Russia, Turkey, Egypt and Pakistan. About 10 percent of global production is traded annually (Fresh Plaza 2016). The average annual onion consumption is over 13 pounds of onions per person across the world. Libya has the highest per capita consumption at about 66 pounds per year (National Onion Association 2017, Yara 2017). The global onion powder market is currently much smaller than the onion market but is witnessing a healthy growth rate of 5 to 6 percent annually. The United States is currently the world's largest producer of onion powder. Other major producers include India, China and Egypt. 194. The mapping of the value chain includes several segments: inputs, production, packing & storage, processing and distribution & marketing (Figure 3.5). • Inputs include seeds, fertilizers, agrochemicals (herbicides, fungicides and pesticides), and agricultural equipment. Their quantity and quality determine productivity and onion characteristics. • Production Large farms are industrial producers that are linked to international agribusiness and retailers. Onion producers are usually working with multiple buyers at the same time. Producers distinguish themselves by acquiring certifications such as organic and sustainably grown labelling. • Primary processing includes pack houses and storage. Once onions are harvested they are bagged and transported to collection centers. These centers are controlled by traders, farmer organizations and/ or large agribusiness. The onions are sorted, graded and bagged in commercial size bags with labelling and certifications for domestic markets and exports. Once the produce is ready for transport, it is placed in chilled or well ventilated cool storage units ready for export. Packing usually requires economies of scale due to the high costs of cold storage and other inputs necessary at this stage. 86 Figure 6.4. The onion global value chain map Source: Ahmed and Bonaventure (2017). • Secondary processing. The onions are cleaned, chopped and packaged or dehydrated for use in further processing. Onions are seasonal and cannot be stored, making dehydration an economical technique for preserving them. Firms in the processing segment range from large commodity processors such as Olam to brand food makers such as Nestle. About 15-18 percent of onion production is processed for use in food items such as soups, relishes and sauces (Yara 2017). • Marketing is this final stage where the produce is distributed to different channels including supermarkets, small scale retailers, wholesalers and food services. 195. China, India and USA have remained the top three global onion producers for the last five years. In 2015 onion trade was valued at almost USD six billion. Onion production reached about 88 million tons in 2014 (FAO 2017). In 2015 Africa exported about USD 368M worth of onions. Egypt is the continent’s largest exporter with approximately 79 percent of Africa’s onion exports, followed by South Africa at 5.6 percent, Morocco at 4.9 percent, Ethiopia at 2.5 percent and Kenya at 2 percent. African imports accounted for about USD 295M (Figure 6.5). Senegal onion imports reached about USD 64 M in 2015 accounting for almost 22 percent of Africa’s onion imports. Almost 76 percent of Senegal’s onions came from Holland, 18 percent from China and the rest from Turkey, India and the UAE. Senegal is also an exporter of onions mostly to Europe especially the United Kingdom. Cote d’Ivoire, one of the primary export destinations for Niger’s onion and the second largest importer in Africa, imported onions from Holland (70 percent) and China (seven percent). China is now a leading exporter of onions to several African countries including Algeria (Simoes and Hidalgo 2017). 87 Figure 6.5. Leading importers of onions in Africa in 2015 Leading Importers of Onions in Africa (Million USD 2015) 70 63.6 60 50 40 33.9 30 20 15.9 14.9 14 13.8 13.6 13.6 8.43 7.78 10 0 Source: Simoes and Hidalgo 2017. 196. The global onion value chain is buyer driven. In onion processing most buyers are large agro processors such as Olam and brand food manufacturers such as PictSweet, McCain Foods, Pepsico, Campbell Soup and Nestle. The industry is fragmented on the production side but is more concentrated in its higher value inputs and processing segments. Large buyers and processors have access to information such as consumer preferences, economies of scale and the technology to develop new seed varieties, food products and improve efficiency. Relations with onion producers are governed by contract instruments and private and public standards to ensure delivery of detailed quality and characteristics based on buyers’ specifications. 197. Participation in the global horticulture value chains requires adherence to standards and certification requirements on traceability that require relatively high fixed costs, making it difficult for small farmers to participate in these markets. For example, Global GAP is a voluntary 'pre-farm gate' that applies to the planting and harvesting of horticultural produce. Producers and exporters must maintain a verified and thorough record-keeping and auditing system to ensure compliance and reduce the risk of contract loss (Asfaw, Mithöfer et al. 2010 a,b, Mithöfer and Waibel 2011). The supplier must also have in place a Quality Management System (QMS) including documentation on traceability, quality control and internal audit (Carey and Lawson 2011). 6.4 The Bovine Value Chain in Niger 198. Livestock is Niger’s third largest export after mining. Official numbers of live bovine and other animal exports are difficult to determine due to the high informality of the sector, and the significant number of hoof transport of animals across borders, especially with Nigeria its main trade partner (MCC 2014). In 2009, estimated export earnings reached about 20 percent of the commodity exports but only half of them were officially registered as exports (World Bank 2010). Livestock also represents about 12 percent of Niger’s GNP and 40 percent of GDP. Goat, sheep, bovine, camel, equines and donkeys, in that order, are the main types of livestock (Figure 6.6). The latest available census of 2012 shows a livestock count of 37,835 herds (Devèze 2011, World Bank 2013, IMF 2017). Niger’s government investments in the livestock sector is low which resulted in its underperformance and declining participation in regional and global trade. Public investment in animal breeding and livestock services decreased from 6.5 percent annually in 1985 to only one percent in 1994 and increased to a range of 2.5 to 3.7 percent of the agriculture budget from 1998 to 2009 (Rhissa 2010). The overall livestock budget is only about 0.3 to 0.4 percent of the national budget (Rhissa 2010). 88 Figure 6.6. Niger livestock Source: FAO 2017. 199. Niger’s bovine chain is buyer driven with large traders/ herd owners and processors (whole sale butchers) having a lot power in the chain. There are few public and private livestock service providers in the inputs segments. Some features of the chain are next. • Inputs: Public and private sector actors provide limited services on animal health. Only two vaccines are required and services in these segments are undeveloped. Assessing the level and consistency of animal health provision is more complex because of the high informality of the chain. • Production: Bovine producers depend on open grazing to feed their animals. They also use some cotton seed based animal feed to fatten their herds. The high cost of animal feed and lack of water are the major constraints that producers face. • Main actors. Bovine production is mainly performed by three types of producers: o Large herd owners who are also involved in trading. These usually own over 500 heads of bovines and assign their care to farmers who take care of their grazing. Approximately five to six families work for these bovine owners. o Medium and small herd owners who sometimes are involved in trading but usually have bovines as a type of saving and/ or investment. o Dairy cattle producers who have medium to small herds and supply milk to local traders/ collectors, some processors and produce milk for their own consumption. Dairy losses are high due to lack of capacity on diary handling and infrastructure deficits. • Processing: The chain has multiple middlemen and traders that connect buyers and sellers. Butchers in the chain are a traditional social class or tradesmen who have been in the profession for generations. The most powerful actors in the chain are the big traders who are also butchers and wholesalers of meat. They buy animals on credit and contract their slaughter at the public slaughterhouses. They are usually referred to as the “kings of wholesale�. These butchers sell the meat to retailers who purchase it directly from the slaughter house. Later, retailers sell the meat in the urban markets for a quick turnover. The butcher wholesaler (and apprentices) have high stakes in the operation of slaughter houses. Slaughter houses’ costs are managed and supported by the government to keep the prices of meat low. There are four large slaughter houses in the country in Niamey, Zinder, Maradi and Tahoua. The first and only private slaughterhouse, named Sonipev, is in Niamey, is fully equipped with modern cold storage, obtained ISO and HAACP certifications and has refrigerated logistics. SONIPEV has not developed its domestic and export market buyers and temporarily shut down its operations. Others do 89 not have reliable (or any) cold storage, which makes sanitation and health conditions in these houses extremely poor. Furthermore, the meat is transported by the buyers in passenger type cars, motorcycles and other informal means. • Traders: Large traders finance and manage the transport of animals across the border. Export animals are gathered in groups and transported directly across the border mostly to Nigeria. Neighboring markets serve as gathering hubs for these transactions. The location of assembly markets shifts to avoid border controls and tax collectors (M. Fafchamps and Gavian). • Dairy processing: Most dairy is consumed by producers’ households. Several 8 lead firms are processors that buy the milk directly from producers and from milk collectors. Quantities collected vary based on the season. “Niger Lait� is the domestic market leader and has multiple international certifications. The company sources its milk locally in small amounts (five percent of its needs), thus importing large quantities from France and other European countries to meet demand. There is a small number of semi-modern dairy operators including Tarmamoua Ader, the Niamey Dairy Cooperative and the Azla dairy in Agadez. Women are involved in artisanal dairy production which is relatively small. • Leather Processing: Bovine hides represent over 65 percent of global leather inputs. However, conditions regarding animal health, the slaughter house and tannery practices makes it difficult for Niger to participate in this higher value processing. Traders buy the leather at the slaughterhouse which they sell to tanneries for processing and exports. There are about four large tanneries in Niger.54 There are also many small traditional tanneries that supply local handcrafts. Field interviews indicated that informal leather trade is very strong among regional buyers through the local traders. • Marketing: Niger has more than 500 livestock markets that operate once a week. They are located near live animals’ production areas, large urban centers and close to Nigeria’s border. • Exports. Niger exports only live animals mostly to Nigeria that also depends on livestock imports. Exports to Nigeria are seasonal and fluctuate based on exchange rates and the Nigerian economy. Bovine exports are declining significantly from over USD 66 million in 2008 to about USD 3.8 million in 2015. Following the naira devaluation, Niger has experienced reverse trade with Nigerian traders coming across the border to sell their live animals in Niger’s markets. Nigeria’s economic downturn and reduced value of energy exports has renewed its interest in reducing its dependency on imports and developing its livestock sector. 200. Niger Bovine Value Chain Challenges are numerous. The industry continues to operate using a supply approach with unclear enforcement of regulation and poor sanitation and management of the slaughterhouses. The lack of animal health certification, traceability and poor conditions in the production and processing levels have discouraged regional and international buyers from investing in the sector. This is mainly because the chain is informal, derived by traditional networks linking producers, intermediaries and traders, and henceforth market information is quite weak. Lack of market information provides traders and wholesale butchers with major power in the chain. Field interviews indicate that other actors in the chain are not organized and unaware of upgrading requirements and market dynamics in the region and external markets. Some stakeholders also indicated that the small network of actors at the butcher wholesaler level might resist changes in the chain such as new regulations on animal health and better sanitation at the abattoir level. Figure 6.7 shows problems across all segments of the chain. 54 Malam Yaro of Zinder and from Gamkalé, Tamaske and Magaria 90 Figure 6.7. Bovine value chain challenges in Niger Source: Ahmed and Bonaventure (2017). Figure 6.8. ECOWAS milk imports ECOWAS Milk Imports in USD from 2007-2008 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cabo Verde Guinea-Bissau Senegal Nigeria Côte d'Ivoire Ghana Niger Source: ITC 2017. • Animal health constraints comprises issues such as poor access to water, veterinary and genetic services, no stringent health and vaccination regimes and lack of certification and traceability in the processing sector. The animal health protocols need to be aligned with higher regional and international standards to make the chain more competitive. Animal feedlots are underdeveloped. Farmers use animal feed that is locally mixed to substitute lack of pasture to fatten animals. Feed lots are an important segment for animal certification and traceability that is currently missing from Niger’s 91 chain. Leather processing requires good animal health practices, organizing and establishing modernized tanneries that can produce quality leather per buyer specifications in global markets. • Lack of investment, sanitation and low management capacity in the public slaughterhouses are a considerable constraint to the meat processing and a threat to public health. It would be interesting to explore renting options of Sonipev, while upgrading the production segment of the chain to develop market opportunities in other slaughterhouses. • The Dairy segment of the chain has considerable opportunities to contribute to food security, improve livelihoods, create employment opportunities, reduce dependency on imports and capture some regional exports (Figure 6.8). Challenges such as transport and improving productivity will be critical to mitigate to capture the dairy potential in Niger. Private sector actors with modernized operations can also be leveraged to improve the sector and can be sourcing more milk locally if the production increases. There are several African countries including Kenya that have been able to overcome similar challenges and moved from being large importers to regional exporters of dairy. 201. Table 6.1 presents a summary of the bovine value chain strengths, weaknesses, threats and opportunities. Table 6.1. Niger bovine value chain strengths, weakness, opportunities and threats (SWOT) Strengths Opportunities • Large and diverse herds • Global and regional demand is increasing • Growing domestic demand • Strong demand in North Africa • Awareness of needing to improve the sector • Potential for investment from African, Middle • Education linkages with Moroccan Universities Eastern and Indian firms • Large number of youth • Political will to improve the sector performance • Presence of an innovation incubator that can • Large domestic and regional market for dairy leverage technology • Presence of few firms in dairy • Political will to improve the sector Weaknesses Threats • Insufficient orientation toward quality, • Competitor countries could replace the supply certification and traceability that Niger cannot develop • Animal health standards are low • Chronic environmental and water stress • Low productivity in the dairy sector • Loosing export share • Global image • Security concerns • Lack of investment across the chain • Sector informality • Lack of private sector participation • Weak and insufficient associations and collaborations • Fragmented and low market organization • Lack of services and infrastructure • Lack of training and development • Unsanitary conditions in public slaughterhouses Source: Ahmed and Bonaventure (2017). 6.5 The Onion Value Chain in Niger 202. Niger is the biggest onion-exporting country in West Africa. With an annual production of some 783,000 tons per year, onions are an important source of income for over 100.000 farmers and other chain actors, including intermediaries, transporters and traders. Niger, Burkina Faso and the Netherlands are the 92 main regional onion suppliers. Prices vary greatly depending on the season, due to the perishability and difficulty of storing onions. Niger’s central-eastern Tahoua Region, the home of the onion variety ‘Violet de Galmi’, is an important centre of onion production, processing and marketing. The taste attributes specific to the purple-coloured Violets de Galmi are highly appreciated in local and regional markets. Onion farming is popular as a cash crop. Farmers use a large part of their onion income to compensate for shortfalls in grain production and to meet their food needs. Niger has sufficient production to meet its domestic consumption and export and the onion value chain is oriented towards production for exports to regional markets based on the reputation of the ‘Violet de Galmi’. The chain has several features: • Inputs: The National Insitute of Agriculture Reaserch is the main public sector organization working on agricutlure research and developing seed varieties. Imported and locally developed seeds are moslty provided by farmers, cooperatives and traders. Farmer cooperatives and federations play a major role in working with farmers to provide credit for seeds, fertilizer, agrochmeicals and machines. Suppliers offer informal credit instruments to producers. Most fertilizers are imported from China and agrochmeichals are from Nigeria. Figure 6.9. Niger onion production and exports Quantity produced Vs Quantity export and value export 800,000 $90,000 700,000 $80,000 Quantity in Metric Tons Export Value in USD 600,000 $70,000 500,000 $60,000 $50,000 400,000 $40,000 300,000 $30,000 200,000 $20,000 100,000 $10,000 0 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Axis Title Quantity export (tons) Quanity produced(tons) Onion Export ('000 dollars) Source: FAO 2017, ITC 2017. • Producers: There are about 300,000 farmers engaged in onion production (Issa 2012). Largest onion producing regions are Tahoua, Zinder and Agadez. Tahoua is the largest producing region accounting for over 70 percent of Niger’s production (Collectif Strategies Alimentaires 2011). Agadez farmers have a unqiue advantage in being able to produce onions during the rainy season when onions are difficult to find in West Africa and are higher in price. Large farms are about 5-10 hectares with intensive irrigation (Mamane Yachaou and Zhihong 2013). Producers are organized into cooperatives which belong to federations on the national level. Farmers pay membership dues to access the cooperatives’ services. The cooperatives and federations reduce market information gaps for farmers by setting trading prices, coordinating onion collections and handling the export of onions. • Processors: There are two types of processing in Niger. Primary that just focuses on sorting and putting onions in large jute bags that are made by women, and secondary artisanal drying processing of onions. Artisanal dried onions are processed by women and sold in local markets. The cooperatives sort, bag and trade onions on behalf of the farmers. The onion are bagged in 100-150 kilgoram jute bags and 93 loaded onto 300-350 tons trucks for transport to Niamey and export destinations. Onions move quickly as they cannot be stored beyond three months. There is one modern large storage facility established by PRODEX—a World Bank project--in Bkonni. Cold storage is currently not available. • Traders: The crop passes from farmers to collectors and the cooperatives to the federation to buying agents representing large dealers in large local markets such as Niamey or export markets. Typically, a buying agent brings producers and buyers together arranges the terms of the sale and supervises packing and loading of trucks for transport. In a major consuming market like Niamey, onions are unloaded in Katako (Boukouki) market where retail or smaller wholesalers buy the onion on credit. USAID projects and PRODEX helped establish the onion trading areas in Bkonni for onions - comptoir de commercialisation de l’oignon. Retailers sell in the Petit Marche and other retail points in the capital. Onion trading markets are developing to improve market cooridnation. Traders control trading relations in importing countries and market informtion such as the importers’ name and buyers’ market information. Traders also bypass cooperatives and federation channels and work with farmers dirctly. All trucks are taxed on the number of bags when they cross the border. Informal trade is a problem. Markets: the quantity of onions exported is largely below the quantity of onions produced (Figure 6.9). Domestic consumption is estimated to be only about five percent of the production, which indicates that producers are facing difficulties marketing their onions in the region. According to farmers, more than 30 percent of the onion production is lost every year due to declining exports and difficulty in storage. Niger’s onion exports (in value) have been declining since 2008--albeit recovered in 2011--and then started declining again (Figure 6.10). Before 2008 Niger’s exports reached over USD 50 million and dropped to about USD 10 million by 2015. Interestingly, traders are also importing small amounts of cheaper onions from Holland and neighbouring countries which is problematic. • Markets: Ghana is the major importer of Niger’s onion followed by Cote d’Ivoire, Burkina, Benin, Togo and Nigeria (see Figure 6.10) (see Annex on Ghana’s onion buying profile in the Background Paper). The onion does not meet international standards such as global GAP which makes it difficult to export to Europe and North America. All exports to the region are conducted using traders that have deep connections to importing destinations. There is little known among actors in Niger as to the marketing channels of onions in importing countries. Niger competes with the Netherlands, China, Burkina Faso and more recently Senegal to supply countries in the region. Recently Senegal emerged as a global supplier of onions to Europe and West Africa. The country went from being an importer to a growing high value exporter. Increasingly, neighboring countries are producing onion varieties like Niger’s onions which will continue to impact exports. Even though the Violet de Galmi is specific to Niger and has the reputation for being among the best in the region, exports have been decreasing which indicates shifts in regional markets and a decline in its competitiveness. 94 Figure 6.10. Niger's onion exports by country 2004 - 2015 Niger Onion Exports by Country 2004 - 2025 in USD 25,020,000 20,020,000 15,020,000 10,020,000 5,020,000 20,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 2015 Ghana Burkina Benin Togo Nigeria Cote d'Ivoire Mali Algeria Source: ITC 2017. 203. Unlike the bovine value chain, actors in the onion sector are more organized into cooperatives and federations to reduce the role of middlemen and regulate the price of onions in domestic and export markets. There are are several leading onion organizations. The Association Nationale des Coopératives des Professionnels de la Filière Oignon (ANFO) and Federation des Cooperatives Maraicheres du Niger (FCMN) are the two leading federations. The organization has about 40,000 producers who belong to 400 cooperatives that belong to 50 cooperative unions in the municipalities, and 5 federations in 8 regions. FCMN is a producer organization that seeks to improve horticulture markets. The Fédération des Coopératives Amintchi is a farmer organization in Tahoua region. The federation established the largest onion trading and storage area in Bkonni with international development assistance. The Regional Observatory of the Onion in West and Central Africa (ORO/AOC) established in 2003 with the support of the the Conference of Ministers of Agriculture in West and Central Africa (WCA-WCA) is responsible for creating favorable conditions for onion trade between producer countries and regional importers. ANFO have been collaborating with the Regional Observatory of the Onion in West and Central Africa (ORO / AOC) to develop the onion export certificate to faciliate onion trade between West African countries. Exporting trucks use the certificate to pass through border check points faster (see annex in the background paper on export certificate). The federations are responsible for setting onion market prices, facilitating credit and inputs and managing the process of onion trading. The federations compete for power and to represent the onion sector. None of the federations are fully aware of regional market dynamics and increasing competition. The federations are concerned about changes in export market share and recognize the improtance of upgrading. However, thers is little awareness regarding global certifications, quality and conditions for invesetments by mulitantional firms in higher value processing. The federations are pushing for the branding of the Violet de Galmi as a national heritage product that is uniqe to Niger with a defined quality and specificaitons. 204. Paradoxically, the government of Niger recognizes onion production as one of the leading export oriented competitive agricultural products, but does not have an industrial policy to develop agriculture processing and focus on agri-business. The VC map in Figure 6.11 and Table 6.2 illustrate the challenges across all segments of the chain. Even though the sector is organized around cooperative it is still largely informal. Decreasing market share, information asymmetry and price volatility are all indications that the chain is not addressing shifts in regional demand and has not upgraded. At the same time, processors are continuing to use the traditional large jute bags which contribute to crop loss during transport and lowers value. Exporters prefer using the larger bags to lower export tariffs which are calculated based on the number of bags and not on weight. In addition, additional industry challenges include: Low quality and 95 availability of inputs and equipment; lack of access to certified seed; the limited financial capacity of producers; lack of certification and traceability; inadequate storage infrastructure; low value processing; lack bargaining power of producers vis-à-vis traders; oversupply during onion main season; competition from regional and European markets; and lack of innovation and private sector investment. Figure 6.11. Constraints in Niger's onion value chain Source: Ahmed and Bonaventure (2017) based on field research and literature review. Table 6.2. Onion value chain strengths, weaknesses, opportunities and threats (SWOT) Strengths Opportunities • Regional recognition for being the leading • Improve quality producer of the Violet De Galmi • Expansion into higher value segments • Regional reputation of the Violet De Galmi • New market development • Sector is organized into cooperatives • Define quality standard for the Violet de • Political will to develop exports Galmi and product brand Weaknesses Threats • Lack of coordinated policy/sector strategy • Competitor countries can replace Niger’s • Insufficient orientation toward product supply quality (lack of certifications, problems with • Product has other substitutions mixing varieties, non-uniform, post-harvest • Regional market entry is relatively easy handling and treatment) • Security concern • Fragmented and sufficient associations and collaborations • Lack of finance across the chain • Infrastructure deficit • Lack of market information systems • Low awareness of market dynamics • Over production and low diversification Source: Authors based on field research and literature review. 96 6.6 Learning from Successful GVC Cases 205. In this section, we extract the lessons from four African countries that upgraded into the livestock and onion value chains successfully. In the bovine industry, we examine Ethiopia and Namibia; and Senegal and Egypt in the onion industry. Their upgrading experience is summarized in Tables AVI.1-3 in Annex. 206. Ethiopia is the largest live bovine exporter in Africa with a trade value between USD 175 and 200 million to mostly Somalia, Djibouti, Yemen, Oman, Egypt and Saudi Arabia. Livestock value chain development in Ethiopia is guided by several framework plans, initiatives and inputs. The 2015-2020 Livestock Master Plan (LMP) is a series of five-year development implementation plans or ‘roadmaps’ to implement sustained and well monitored livestock-dedicated policies (Table 6.4). 207. A first game changer was the Sanitary and Phytosanitary and Livestock and Meat Marketing (SPS- LMM) Program in 2005: The program supported the National Animal Health Diagnostic and Investigation Center (NAHDIC) in developing its capacity to do export livestock SPS testing and certification along with other critical support services. Ethiopian SPS regulations state that cattle for export must be quarantined for 30 days and vaccinated against CBPP, anthrax, black-leg and FMD (Farmer 2010). 208. Involving the Allana Group was the second game changer for Ethiopia’s meat. The group is India’s largest exporter of branded processed food products & agro commodities to over 85 countries. Allana entered the Ethiopian market around 2014 and secured 75 hectares from the Oromia Regional government to build a meat processing plant around Adami Tulu, near Ziway. The plant will be the largest in the area and will have the capacity to produce 75 tons of meat every day. The company will be processing about 200 cattle and 5,000 sheep and goats per day and package 75 meat products for daily export. The company will be exporting frozen beef on a trial basis to Kuwait and Oman (All Africa 2017). 209. Namibia is the only African country that can export meat to countries of the EU., Russia and China. Namibia was granted preferential access to supply 13 000 tons of beef to EU in 1975. However, Namibia was unable to take advantage of access to EU markets because about 51 percent of its cattle did not meet EU standards (Seibeb 2014). By implementing a more stringent animal health regime that complies with European Standards Namibia became the first African country in the 1990s exporting to Europe. In 2016 Namibia became eligible to export meat and meat products to the United States. The Food Safety and Inspection Service (FSIS) has reviewed Namibia's laws, regulations, and inspection system, and determined that they comply with standards established by the U.S. Federal Meat Inspection Act (FMIA), and the United States food safety system for meat and meat products. 210. Effective governance helped Namibia enter the beef value chain in the 1990s. Early in the 1990s, Namibia identified animal disease and hygiene as the most important bottlenecks when it comes to export livestock opportunities. Namibia became the second country to be recognized in Africa by the International Office of Epizootic (OIE) as free zone Foot-and- Mouth disease. Disease zoning with the veterinary cordon fence (VCF) and strict control of animal movement was key in improving animal health in the VCF. Animal zoning was the first step in protecting the national livestock against major Transboundary Animal Diseases (TADs) and integrating cattle farmers in the formal economy (Speir, Cabrera et al. 2010, Seibeb 2014). The government also banned the use of all hormones and other substances detrimental to human health and emphasized value addition. In addition, major investment interventions have been made to upgrade the export abattoirs to European Standards of hygiene. The government strategy included standards for animal farming practices free raging on natural pastures, transport of live animals during the night and the treatment of animals as humanely possible. 211. The Meat Board and Meatco are Namibia’s game changers. The Meat Board is the beef value chain coordinating body to raise and discuss value chain governance, national strategies and implement industry 97 standards. Key stakeholders are members of the Meat Board. The Meat Board ensured that Namibia meet the EU’s “90/40 residency and the traceability� requirements. The board introduced a nationwide meat scheme that ensures animal welfare and traceability and meets the highest international environmental and health standards. Meatco, the largest meat processor in Namibia, was established by cattle producers, has been instrumental in stabilizing the meat value chain and a leader in building and maintaining a reputation of high quality in international markets. The corporation has four abattoirs, operates a tannery and has subsidiaries in Europe and South Africa. Two of these abattoirs are certified to export to the EU and the other two export to South Africa and other countries. 212. The Senegalese are large onion consumers who until recently were highly dependent on onion imports to meet growing demand. In 2012 the government started taking steps to reverse this dependency on imports by establishing self-sufficiency goals by 2017, adopting standards, and increasing onion production including the Violet de Galmi variety (CGERV 2015). By 2013, the Senegalese government initiated several policies that focus on improving onion production and exporting to European markets (Table 6.5). The country is now exporting to Europe, is growing organic horticulture and can meet international standards. 213. The game changer was quality control of seeds production and organization of the sector. Since 2013, the Government assisted producers to organize into professional networks to improve the efficiency of production and meet regulatory standards. By 2014, Senegal produced close to 245 thousand tons of compared to only 46 thousand tons in 2003. The country recently established the Agribusiness Innovation Center to promote innovation, manufacturing and value added processing in the agriculture sector. 214. Barfoots of Botley was Senegal’s second game changer. The investment of Barfoots and Botley, a leading UK-based producer contributed to Senegal’s onion entry into British supermarkets. In 2006, Barfoots established “Société de Cultures Légumières (SCL)� as a joint-venture in Senegal. The company is internationally recognized for its world-class farming and food production and was voted “British Vegetable Grower� of 2007. The company is supplying local market and exporting to the United Kingdom. By 2016, UK exports increased from over USD 21 thousand in 2008 to almost USD 3.7 million (see figure 38). The company is also working on other horticulture products in Senegal and is planning to boost grape production for exports as well (Barfoots 2017). 215. Egypt is the only African country among the ten top largest onion exporters in the world. In 2015, Saudi Arabia, Russian Federation, and UAE were the top importers of Egypt’s onion. Exporters in the country are diversifying their exports outside EU markets to shift towards other markets with less stringent private and public standards. With an average production of 1.8M tons a year, Egypt’s onion sector production and exports are the result of targeted agriculture policies, trade agreements, an active private sector, and the entry of international firms. 216. Improving the enabling environment was a first game changer. Policies such as land and trade liberalization increased agricultural exports regionally and to Europe. Egypt’s policies and agreements target private sector growth and export diversification. For example, the Greater Arab Foreign Trade Agreement (GAFTA), signed by 17 members in 1998, dismantled customs tariffs by 10 percent annually over ten years and created a free regional trade regime which increased Egypt’s horticultural exports especially to Saudi Arabia. The country also signed a 15-year agreement with the EU in 2004 to export certain agricultural products that meet EU traceability and certification standards. Investors entered the sector and implemented higher standards to participate in horticultural exports which represent about 65 percent of Egypt’s agricultural trade (Torayeh 2013). 217. The second game changer was Olam’s entry attracted by consistent quality and supply . In 2012 Olam acquired Dehydro Foods Egypt, a leading producer of high quality onion dehydrates and with strategic 98 investments targeting access to markets in Europe, Africa, Brazil and Japan. The company enhanced processing capabilities, established a strong supplier base for native Egyptian yellow onions and developed a fully traceable and sustainable source of white onions. The company started a smallholder farmer program to provide training on the best agricultural practices and yield improvements for capacity building. In 2015, Olam initiated contract farming with large, organized farmers and corporate farms in Egypt to produce traceable, high solids onions over an eight-month harvest season – November to March in winter and April to June in summer using proprietary seed developed in the USA. After only one year the farms successfully developed 1,500 acres and grew 2,500 MT of traceable, high solids white onions using half the amount of water and energy for each ton of output compared to growing conventional onions (Bansal 2017). 6.7 Policy Recommendations 218. Global and regional market realities are putting strong intense pressure on Niger’s bovine and onion value chains and, as an agricultural seller, strengthening Niger’s participation in global value chains requires densification and economic upgrading to higher value added activities. “Densification� is about engaging more local actors (firms and workers) in its agricultural GVC network. This contributes to the overall goal of increasing a country’s value added as it creates spillovers across sectors and res ilience to external shocks (likely to increase with greater export orientation, other things equal). In fact, this could even mean that performing lower value-added activities in on a large scale can generate large value- addition for the country. In turn, “economic upgrading� is about gaining competitiveness in higher value - added products, tasks and sectors. At least, three types of economic upgrading exist: (i) moving into more sophisticated products and/or targeting high growth demand markets (product and/or market upgrading); (ii) increasing value-added shares in existing GVC tasks with technology and/or improved quality and standards that raise confidence and profitability (functional upgrading); and (iii) moving into new value chains with higher value added shares with agents that will disrupt the status quo and help develop the sector (intersectoral chain upgrading). Improving the competitiveness on these value chains is critical to reversing the decreasing market share of Niger’s exports in Sub-Saharan Africa 219. Hence, Niger’s policy makers and private investors need to decide which type of economic upgrading (products, market, functional or intersectoral) they want to pursue and their menu of options is included in Tables 6.3-6.4 below. The opportunity cost for Niger not upgrading the onion or bovine value chain highlights the cost of not improving the quality and certification systems in these value chains and are high. Compared to Senegal onion trade with the EU in 2016 is about USD 92.2 million. At the same time, live bovine exports show that Niger is foregoing over USD 8 million when compared to the export values of live bovines from Ethiopia that are mostly going to Somalia and the Middle East.55 Complementary policy efforts on densification also need to focus on providing incentives to facilitate firms’ entry and development and improving the business environment. Among them, improving and developing product quality and standards, while improving the enabling environment for firms to enter are the key drivers in upgrading both chains and developing agribusiness in Niger. 55 Details on these cost estimates are in Ahmed and Bonaventure (2017) and available from the Authors. Their original report also contains a summary of Government’s policies and a more detailed Implementation Plan. 99 Table 6.3. Upgrading in Niger’s bovine value chain Upgrading Description Chain Segment Key Actors University Increase productivity and health through Inputs Training Centers animal research and education Support Services Extension Services/INRAN Veterinary & Breeder Services Animal welfare : vaccine, feed, water and Inputs Extension Process traceability Production Animal Health 7 Environmental Upgrading Control / Farmers - Short to Improve breeding with artificial Medium Meat Production Veterinary & Breeder Services insemination of livestock, reproductive Term Dairy Production Extension Farmers flushing services &bovine testing stations Veterinary Services/Butchers Sanitation, hygiene and traceabilty Animal and Food Authorities Slaughterhouse standards Inspectors Slaughterhouse Managements Butchers Slaughterhouse Develop and enter higher value meat ANIPEX/Sector Associations Marketing markets – fresh and frozen meats Packaging Firms Product Support Serivces Logistics Firms Upgrading Inputs Butchers – Medium Production ANIPEX Term Develop niche market products e.g. Halal, Slaughterhouse Training Centers grain fed Marketing Sector Associations Supprot Services Certification Authority Improve producer skills and develop Functional certifications Production University Upgrading Improve butcher skills and develop Processing Training Centers – Medium certifications Supporting Certification Authority Term Develop and implement slaughterhouse services Inspectors certifications/inspection capacity ANIPEX Develop new end markets in Africa such as Marketing Sector Associations Algeria and Egypt by upgrading standards Processing Market Logistics Firms Upgrading – University Medium Developing new opportunitities by Marketing Training Centers Term meeting niche marekt standards e.g. Halal Processing Certification Authority and Grain Fed meeat Production ANIPEX/ Sector Asociaiton Logistics Firms University/Training Centers Key opportunity: Develop dairy chain by: Certification Authority 1. Policy incentives Health Authority, Farmers Production Chain 2. Develop bovine to dairy cluster Dairy Processing firms Processing Upgrading outside Niamey Incubators – Short to 3. Leverage champions such as Niger Lait ANIPEX/Asociaiton Medium Logistics Firms Term Key opportunity: Develop leather chain: University, Training Centers 1. Policy incentives to encourage Processing Certification Authority processing and tannery startups Marketing Health & Environmental 2. Develop leather cluster Authority, Farmers, 100 Upgrading Description Chain Segment Key Actors 3. Develop skills to produce high quality Butchers, Processing Firms leather – butcher and tannery Incubators, ANIPEX, Asociaiton 4. Develop marketing linkages Logistics Firms Table 6.4. Upgrading in Niger’s onion value chain Upgrading Description Chain Segment Actors Inputs University, Training Centers Increase productivity through research Support Services Extension Services,INRAN Inputs Training Centers,Extension Increase use of certified seeds Support Services Services,INRAN, Farmers Production Industry Associations Training Centers, Extension Services,Farmers, Process Improve farming practices Production Industry Associations Upgrading Incubators - Short Training Centers, Extension Term Adopt international quality and Services, Certification & Production traceability standards Testing Authorities, Farmers Industry Associations Industry Associations, Investors, Government Improve storage & logistics Processing Agencies, Logistics Firms, Incubators Incubators, Industry and Invest in production of dried onions Processing Investment Agencies International Firms Product Inputs/Production Industry Associations, Develop niche market products e.g. Upgrading Processing Training Centers, ANIPEX, organic – Medium Support Services Certification Authority Term Industry Assoc., Training Inputs/Production Centers, ANIPEX, Develop certified onions production Processing Associations, Certification Support Services Authority Industry Associations, Increase adoption of smaller and better Functional Processing Certification & Standards packing Upgrading Authorities, Export Policy – Short to Industry Assoc. Training Inputs Production Medium Enter International market for certified Centers, ANIPEX, Processing Term products Associations, Certification Support Services Authority Production/Processing ANIPEX, Associations Develop new markets for exports Marketing Logistics Firms Market Production/Processing ANIPEX, Associations Upgrading Develop niche markets Marketing Logistics Firms – Short to Develop market monitoring information Medium Marketing ANIPEX, Associations systems Term Production/Processing ANIPEX, Associations Develop incentives for entrepreneurs Marketing Incubators 101 References Chapter I Armington, 1969, “A Theory of Demand for Products Distinguished by Place of Production�, IMF Staff Papers, Vol.16, No.1, pp.159-178. Chandra, V. 2016. « Growth and Exports Diversification, » DECPG presentation submitted to MFM Forum, Washington DC. Daki, S. and J. Lopez-Calix, 2017, “Structural Change in Niger�, background paper for the study on Niger: Growth and Export Diversification. Washington DC. de Vries, G. & Erumban, A. & Timmer, M. P. & Voskoboynikov, I. & W. Harry X., 2012. "Deconstructing the BRICs: Structural transformation and aggregate productivity growth," Journal of Comparative Economics, Elsevier, Vol. 40(2), pages 211-227. Diao, X., McMillan, M., D. Rodrik, D. 2017. The Recent Growth Boom in Developing Countries, » Draft mimeo, CGIAR Research Program at IFPRI. Fruman, C. 2017. « Economic Diversification: A Priority, » https://blogs.worldbank.org/psd. Gaaitzen de Vries & M. Timmer & K. de Vries, 2015. "Structural Transformation in Africa: Static Gains, Dynamic Losses," Journal of Development Studies, Vol. 51(6), pages 674-688, June. Government of Niger, 2017. « Plan de Developpement Economique et Social. » Mimeo. Niamey. Government of Niger, 2016a. « Renaissance. » Mimeo. Niamey Government of Niger, 2016b. « Vision 2035--Economic orientation. » Mimeo. Niamey. Imbs J. and R. Wacziarg, 2003. « Stages of Diversification », American Economic Review, Vol.93. No.1. IMF, 2016. Article IV on Niger. Washington DC. Haile, F. 2016. “Global Shocks and their Impact on the Tanzanian Economy,� Discussion Paper, Economics, World Bank, Washington D.C. Maloney W. and D. Lederman, 2012. « Does What You Export Matters? » Washington D.C. McKeight, B. McMillan, M., I. Verduzco and K. Jefferis, 2015. « Stuck in the Middle? Structural Change and Productivity Growth in Bostwana, » NBER WPS No.21029. McMillan, M., D. Rodrik and I. Verduzco, 2014. « Globalization, Structural Change, and productivity Growth with an Update on Africa, » World Development, Vol.63. The World Bank, 2017a, 2015. Doing Business. Washington DC. The World Bank, 2017b. « Niger Systematic Country Diagnostic. » Draft mimeo. Washington DC. The World Bank 2017c. Africa’s Pulse. Office of Chief Economist. Washington DC. The World Bank 2017d, «Niger Jobs Assesment », Mimeo (P148525), Washington DC. Van der Mensbrugghe, 2005. « LINKAGE Technical Reference Document, » Development Prospects Group (DECPG) paper, The World Bank, Washington D.C. Chapter II Arvis, J.F. et al. 2010. « Connecting to Compete, Trade Logistics in the Global Economy,� World Bank, Washington DC. Bako Arifari, Nassirou. (2006) “We Don’t Eat the Papers: Corruption in Transport, Customs and Civil Forces.� In Blundo, G. and Olivier de Sardan, JP. (eds.), Everyday Corruption and the State. London: Zed Books. Benjamin N. and N. Pitigala, 2017, « Trade Diagnostic on Niger,� background paper for the study on Niger: Exports Diversification. Mimeo. Washington DC. DTIS, 2015 « Etude Diagnostique sur l’Intégration du Commerce au Niger (E.D.I.C), Ministère du commerce et de la promotion du secteur privé, » Nation Unies, 2015 102 Hausmann and Klinger (2006). Structural Transformation and Patterns of Comparative Advantage in the Product Space. Hidalgo et al. (2007) The Product Space Conditions the Development of Nations. Science 317, 482 (2007). Hummels, D., & P. Klenow. 2005. “The Variety and Quality of a Nation’s Exports.� AER 95 (3). Imbs, J., and R. Wacziarg. 2003. “Stages of Diversification.� American Economic Review. 93 (1): 63–86. International Monetary Fund Article IV staff reports, 2013 and 2015. Klinger, B., and D. Lederman. 2006. “Diversification, Innovation, and Imitation Inside the Global Technological Frontier.� Policy Research Working Paper Series 3872, World Bank, Washington, DC. Jammes, O. 2017, “TRIST-based Simulation of Tariff Changes in Niger,� background paper for the study on Niger: Growth and Export Diversification. Washington DC. Lederman, D., and W. Maloney. 2009. Trade Quality, Regional Study (LCR). Washington, DC: World Bank. Lopez-Calix et al. (2016) "Possible impacts of floating the Nigerian naira on Niger's economy," AFCW3 Economic Focus, Fall 2016, Washington DC, The World Bank. Paudel RC (2014). Economic growth in developing countries: Is landlockedness destiny? Economic Papers. 33(4):339–361. Raballand, G. (2017) Customs Revenue Potential, Trade, and Governance Issues in Niger. Raballand, G. (2017) Commerce Informel et pertes douanières au Niger. Reis, J.G. and T. Farole, 2012. Trade Competitiveness Diagnostic Toolkit. Washington, DC: World Bank. Searcey, D. (2017). Fleeing Boko Haram, Thousands Cling to a Road to Nowhere, Photographs by A. FERGUSON, New York Times, March 30. Torres, C. and J. van Seters (2016). Overview of Trade and Barriers to Trade in West Africa, European Center for Development Policy Management. Touqeer, I. 2017, “The real exchange rate in Niger and Mali,� Background Paper for the study on Niger: Growth and Export Diversification. Washington DC Walther, O. (2009). “A Mobile Idea of Space. Traders, Patrons and the Cross -Border Economy in Sahelian Africa�. Journal of Borderlands Studies 24 (1):34–46. World Bank, 2010, “Connecting Landlocked Developing Countries to Markets. Trade Cor ridors in the 21st Century�, edited by Arvis, J.-F., R. Carruthers, G. Smith, and C. Willoughby World Bank, (2017). Republic of Niger: Priorities for Ending Poverty and Boosting Shared Prosperity – A Systematic Country Diagnostic. World Bank and UN-OHRLLS (2014), “Improving trade and transport for landlocked developing countries – a ten-year review�, Washington D.C./New York World Bank. 2016. “Connecting to Compete: Logistics Performance Index 2016.� World Bank, Washington, DC. World Bank. 2016. Doing Business. www.doingbusiness.org. World Trade Organization (2016). Trade Policy Review – Niger, 2015. Zafar, A. et al. (2017). "Competitiveness Challenges in the CFA Zone in Sub-Saharan Africa." Mimeo, Washington DC, The World Bank. Chapter III Bengayoub, M. and L. Clark, 2017, « Results from the Enterprise Survey and Module on Exporters in Niger,� background paper for the study on Niger: Growth and Export Diversification. Washington DC. Chapter IV Araujo et. Al. 2014, Beyond Commodities, The Growth Challenge of Latin America and the Caribbean, The World Bank, Washington D.C. 103 Armington, P.S., 1969. A Theory of Demand for Products Distinguished by Place of Production, International Monetary Fund Staff Papers 16: 159-176. Beyene, L. M., & Engida, E. (2016). Public Investment in Irrigation and Training, Growth and Poverty Reduction in Ethiopia. International Journal of Microsimulation, 9(1), 86-108. Brueckner, M. 2014. Background paper to the report « Beyond Commodities, The Growth Challenge of Latin America and the Caribbean, The World Bank, Washington D.C. Decaluwe, B., Martens, A. and Savard, L., 2001. La politique économique du développement et les modèles d'équilibre général calculable. Une introduction, Montréal, Presses de l'Université de Montréal. De Melo, J., and Tarr, D., 1992. A General Equilibrium Analysis of US Trade Policy, MIT Press, Cambridge, USA. De Melo, J., Dervis, K. and Robinson S., 1982. General Equilibrium Models for Development Policy, Cambridge University Press. Frisch, R., 1959. A Complete Scheme for Computing All Direct and Cross Demand Elasticities In a Model with Many Sectors. Econometrica 27. Loayza et al. 20045. “economic growth in Latin America,� World Bank. Washington DC. Mankiw et al. 1992. “A Contribution to the Empirics of Economic Growth,� Quarterly Journal of Economics, pp.407-437. Minor, P., & Hummels, D. (2013). Time as a barrier to trade: A GTAP database of ad valorem trade time costs. Impact Econ, Second Edition, October. Available at: http://mygtap. org/resources . Moller L. and Wacker, 2015, “Ethiopia’s Growth Acceleration and How to Sustain It,� Policy Research Working Paper, The World Bank, Washington DC. Stone, R.., 1954. Linear Expenditure Systems and Demand Analysis: An Application to the Pattern of British Demand. Economic Journal 64, 511527 Samuelson, P. A. (1954). The transfer problem and transport costs, II: Analysis of effects of trade impediments. The Economic Journal, 64(254), 264-289. Tijdens, K., Besamusca, J., Ngeh Tingum, E., & Nafiou, M. M. (2012). Wages in Niger: Wage Indicator Survey 2012. (Wage Indicator data report). Amsterdam: Wage Indicator Foundation Van der Mensbrugghe, D. 2005. LINKAGE Technical Reference Document. Development Prospects Group (DECPG) paper, the WORLD BANK, Washington D.C Zaki, C. (2014). An empirical assessment of the trade facilitation initiative: econometric evidence and global economic effects. World Trade Review, 13(01), 103-130. Chapter V Balassa, B. 1986. “Comparative advantage in manufactured goods: a reappraisal.� The Review of Economics and Statistics 68(2): 315-19. Cristelli, M. et al. 2013. Measuring the Intangibles: A Metrics for the Economic Complexity of Countries and Products. PLOS one Vol 8, 8. Dalum, B., Laursen, K. and Verspagen, B. 1999. Does Specialization Matter for Growth. Industrial and Corporate Change 8, 267-288. Dijkstra, T. 2001. “Export Diversification in Uganda: Developments in Non-Traditional Agricultural Exports�, Working Paper 47/2001, African Studies Centre, Leiden University, The Netherlands. Glenday, G. and D. Ndii, 2000. “Export Platforms in Kenya�, African Economic Policy Discussion Paper No. 43, available at http:// www.eagerproject.com. Hausmann R., and B. Klinger. 2007. “The Structure of the Product Space and the Evolution of Comparative Advantage.� Center for International Development, Harvard University Working Paper 146, Cambridge, MA. 104 Hausmann, R. and D. Rodrik. 2003. “Economic development as self -discovery.� Journal of Development Economics 72: 603–633. Hausmann, Ricardo, and Francisco Rodríguez, eds. Hausmann, R, Hwang, J, and D. Rodrik. 2007. “What You Export Matters.� Journal of Economic Growth. 12:1–25. Hausmann, R., and Klinger, B. 2007. “The Structure of the Product Space and the Evolution of Comparative Advantage.� Working Paper #146 (extended and revised version of #128). Cambridge, MA, United States: Center for International Development, Harvard University. Hidalgo, C. A., B. Klinger, A. L. Barabasi, and R. Hausmann. 2007. "The product space conditions the development of nations," Science, 317 (2007), 482�487. Khebede, E. 2017. “The Product Space of Niger�, Background Paper for the study on Niger: Gro wth and Export Diversification. Mimeo. Washington DC. Mimeo, Washington DC. Lall, S. 2000. “The technological structure and performance of developing country manufactured exports, 1985-1998� Queen Elizabeth House Working Paper #44, University of Oxford. Leamer Edward E. 1987. “Paths of Development in the Three Factor, n -Good General Equilibrium Model, The Journal of Political Economy 95(5): 961-999. Plumper, T. and Graff, M. (2001). Export Specialization and Economic Growth. Review of International Political Economy 8, 661-688 Reinhardt, N. 2000, “Back to Basics in Malaysia and Thailand: The Role of Resource -Based Exports in Their Export-Led Growth,� World Development, Vol. 28, No. 1, pp. 57-77. Roster K. and M. Cader M. 2016, “Niger Country Opportunity Spotlight,� Country Analytics, IFC, Washington D.C. Tacchella A, Cristelli M, Caldarelli G, Gabrielli A, Pietronero L. 2012. Economic complexity: a new metric for countries’ competitiveness and products’ complexity. submitted to Journal of Economic Dynamic s and Control. Thoen, R., S. Jaffee, C. Dolan, and F. Ba. 1999. “Equatorial Rose: The Kenyan - European Cut Flower Supply Chain,� in R. KOPIKI (ed.), Supply Chain Development in Emerging Markets: Case Studies, World Bank, Washington, D.C. World Bank, 2017. Systematic Country Diagnostics. Mimeo. Washington D.C. Chapter VI AFDB, et al. (2016). African Economic Outlook 2016. Abidjan, Paris, New York, The African Development Bank, the OECD Development Centre and the United Nations Development. Agritrade (2014) Senegalese government moves ahead with onion sector support measures. Agritrade Ahmed, G., et al. (2013). Wheat Value Chains and Food Security in the Middle East and North Africa. Durham, NC, Center on Globalization, Governance and Competetiveness, Duke University. _________ and B, Fandohan, "GVC in Niger: Bovine and Onions," Background Paper for the study on Niger: Growth and Export Diversification, Washington DC All Africa (2017) Ethiopia: $75m Abattoir Set to Be Operational Next Month. All Africa Asfaw, S., et al. (2010). " Agrifood supply chain, private-sector standards, and farmers’ health: evidence from Kenya." Agricultural Ecnomics 41: 251-263. Asfaw, S., et al. (2010). "What Impact Are EU Supermarket Standards Having on Developing Countries’ Export of High-Value Horticultural Products? Evidence From Kenya." International Food and Agribusiness Marketing 22: 252-276. Bansal, N. (2017) Egypt: Replicating USA Success. Olam Insights Barfoots (2017). "Barfoots Senegal." Retrieved May 15, 2017, from http://www.barfoots.com/about- barfoots/barfoots-senegal/. 105 Barrientos, S., et al. (2010). Economic and Social Upgrading in Global Production Networks: Developing a Framework for Analysis. . Capturing the Gains The University of Manchester. Carey, S. and B. Lawson (2011). "Governance and social capital formation in buyer�supplier relationships." Journal of Manufacturing Technology Management 22(2): 152-170. CGERV (2015). La Production d'Oignon au Senegal. Senegal, Centre de Gestion et d’Écono mie Rurale de la Vallée. Collectif Strategies Alimentaires (2011). Niger: Participation des organisations puysunnes et de /eurs fullieres d Ju serurite u/imentuire et aux flux rommerduux duns Jes marches des produits de base. Niger, Collectif Strategies Alimentaires. Devèze, J.-C., Ed. (2011). Challenges for African Agriculture. Washington DC, The International Bank for Reconstruction and Development / The World Bank. FAO (2011). World Livestock 2011. Rome, FAO., Food and Agricutlure Organization of United Nations. FAO (2013). Investing in African Livestock. FAO, Food and Agriculture Organization of the United Nations (FAO), International Livestock Research Institute (ILRI), African-Union Interafrican Bureau for Animal Resources. FAO (2017). FAOSTAT. Food and Agricutlure Organization of the United Nations (FAO). Farmer, E. (2010). End Market Analysis of Ethiopian Livestock and Meat. Accelerated Microenterprise Advancement Project (AMAP), United States Agency for International Development (USAID). Fresh Plaza (2016). "World's Top 8 Onion Producing Countries." Fresh Plaza. from http://www.freshplaza.com/article/157408/Worlds-top-8-onion-producing-countries. IMF (2017). Niger Selected Issues. Washington DC, International Monetary Fund. Issa, Q. (2012) Niger Onion Producers in Tears Over Market Glut. Inter Press Service ITC (2017). International Trade Statistics I. T. Center. Leake, S. (2014). Leading the Herd: Drought, Governance, and Exit in the Contemporary U.S. Beef Value Chain. Sociology, Univeristy of Colorado at Boulder. Doctor of Philosophy. M. Fafchamps and S. Gavian, The spatial integration of livestock markets in Niger. Livestock Policy Analysis Brief CGSpace, CGIAR. Mamane Yachaou and T. Zhihong (2013). Onion sector in Niger: an overview of “Violet de Galmi� onion. College of Economics and Management. Beijing, China Agricultural University. MarketLine (2017). Global Meat and Livestock. Market Line Industry Profile. London, United kingdom, MarketLine. MCC (2014). Niger Constratints Analysis. MCC Niger Threshold Program Design. Millennium Challenge Corporation (MCC), Millennium Challenge Corporation (MCC). Mithöfer, D. and H. Waibel (2011). Vegetable production and marketing in Africa : socio-economic research. Cambridge, MA, CABI. National Onion Association (2017). "How & Where Onions are Grown." 2017, from https://www.onions- usa.org/. PK, T., et al. (2006). Mapping Climate Vulnerability and Poverty in Africa. Nairobi, Kenya, Department for International Development (ILR). Rhissa, Z. (2010). Revue du Secteur de L'Elevage au Niger. Niger, Ministère de l’Elevage, des Pêches et des Industries Animales, République du Niger. Rieländer, J. (2014). Global Value Chains and Africa’s Industrialisation: African Economic Outlook 2014. African Development Bank, Organisation for Economic Co-operation and Development, United Nations Development Programme. Seibeb, R. (2014) Governance in the value chain: the case of Namibian beef value chain. University of Leipzig world Press Shapiro, B. I., et al. (2015). Ethiopia Livestock Master Plan, International Livestock Research Institute). Simoes, A. and C. A. Hidalgo (2017). The Observatory of Economic Complexity. T. M. I. o. Technology. 106 Speir, I. S., et al. (2010). "African Capacity Building for Meat Exports: Lessons from the Namibian and Botswanan Beef Industries " International Trade Law Journal 19(55). Spencer Henson and J. Humphry (2010). "Understanding the Complexities of Private Standards in Global AgriFood Chains." Journal of Development Studies 46(9): 628-646. Statista (2017). Statista – Portal for Statistics. Statista. Steinfeld, H., et al. (2006). Livestock’s long shadow: environmental issues and options. Rome, Italy, Food and Agriculture Organization of the United Nations. Taglioni, D. (2017). "A taxonomy of global value chain integration." Mimeo. Trade & Competitiveness GP. The World Bank Group, Washington DC. Taglioni D. and D. Winkler (2016). Making Global Value Chains Work for Development. Washington DC, The World Bank. Thornton, P. K. (2010). "Livestock Production: Recent Trends, Future Prospects." Philosophical Transactions of the Royal Society B: Biological Sciences 365(1554): 2853-2867. Torayeh, N. M. (2013). "The Competitiveness of the Egyptian Agricultural Export in the EU Market: Should Egypt Diversify it Trade Pattern?" Applied Ecnometrics and International Development 13(2): 137- 156. World Bank (2010). Niger Modernizing Trade During a Mining Boom. Washington DC, The World Bank. World Bank (2013). Agricultural sector risk assessment in Niger : moving from crisis response to long-term risk management The World Bank, The World Bank. Yara (2017). "World Onion Production." 2017, from http://www.yara.us/agriculture/crops/onion/key- facts/world-onion-production/ 107